Slumping world trade threatening NZ economy

Collapsing trade levels across Asia Pacific is set to hit NZ hard

New Zealand economic prospects have fallen in recent months, and credit reporting company Dun & Bradstreet says the worst is yet to come amid a general collapse in world trade.

New Zealand economic growth was forecast at -1 per cent this year, while world growth was expected to slow to -1.2 per cent, slightly worse than Dun & Bradstreet's (D&B) forecast in January.

In the company's latest "Economic and Risk Outlook", it says world trade, particularly in the Asia-Pacific, and a sharp drop in Chinese economic growth had significantly heightened the downside risk to New Zealand's outlook, D&B New Zealand general manager John Scott said.

In particular, growth in China and Japan is forecast to slow to 3.5 per cent and -3.8 per cent respectively this year.

Increasingly protectionist governments and policies aimed at shoring up domestic banks, which may result in restricted international capital flows, posed big risks to the world economy in coming months, said Scott.

Already, 70 countries out of the 132 rated by D&B had had their risk rating downgraded over the last six months, and further country downgrades were likely.

"The mass country risk downgrades, slump in world trade and forecast decline in growth for many of our key trading partners all point to a deteriorating outlook," he said.

"This requires a unique balancing act from the New Zealand government. They need to stimulate the New Zealand economy but do so in a way that avoids contributing to protectionist trends, both manufacturing and financial, around the world."

New Zealand's risk rating was DB2c, indicating low risk and a low degree of uncertainty in doing business with the country, but its risk profile was deteriorating.

The ratings ranged from DB1a through to DB7.

The rating covered not just the economy but also the political outlook. Slowing economies were expected to fuel growing social unrest in coming months.

- NZPA