Resilience in face of downturn praised

The resilience of the New Zealand and Australian economies amid the global downturn is a testament to past structural reforms and conservative economic management, according to Standard & Poor's sovereign analyst Chew Ping.

But there was also a warning to both Governments to continue running prudent fiscal policies because sizeable budget deficits, without timely corrective actions, would put downward pressure on their credit ratings.

The robustness of both economies was reflected in real gross domestic product growth rates, which were expected to beat the US, most of Europe and the majority of Asian countries in 2001 and 2002, Mr Chew said in S&P's January Credit Focus publication.

"During a time of global slowdown, the economies of Australia and New Zealand are reaping the benefits or past microeconomic structural reforms and conservative economic management," he said.

"The ratings of both Governments are still underpinned by low government domestic and external debt positions, conservative macroeconomic policies and resilience in the economies," he added.

S&P has AA plus long-term foreign currency credit ratings assigned to both countries, with stable outlooks.

Mr Chew said competitive exchange rates had driven export growth amid slowing world demand, while domestic demand, particularly private consumption, had risen in line with income and employment growth.

The loosening of fiscal stances that both Governments initiated in early 2001 proved fortuitous in light of the subsequent drop in global economic activity and confidence, Mr Chew said.

Current fiscal policy stances were comfortably within the parameters appropriate for each country's rating and the recent easing of the policy stance was not expected to persist. The management of monetary policy by the Reserve Bank of Australia and the Reserve Bank of New Zealand had also been prudent, Mr Chew said, adding that it must have been difficult to balance the impact of depreciating currencies and strong domestic demand.

However, he said neither Australia nor New Zealand would be immune to a protracted global slowdown and New Zealand was more vulnerable.

- DOW JONES