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Business Weekly Economic Report
Budget beauty pageant
Monday, 25 May 2009
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This week the focus is on the Budget, with the potential for a sovereign credit rating downgrade imposing a degree of fiscal discipline. To reduce the chance of a downgrade the Government will be highly focused on constraining expenditure growth and mitigating revenue impacts.
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Ireland has demonstrated the importance of avoiding a sovereign downgrade. The Treasury head noted recently that Ireland’s downgrade experience suggests a local downgrade could lift NZ interest rates by 1.5 percentage points.
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A lift in debt-servicing costs for households and businesses would hamper NZ’s economic recovery and cost jobs. Ireland is a relatively extreme example, but other countries suffering downgrades now have higher risk premia.
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Report Prepared by:
Jane Turner
ASB Economist
Phone: +64 9 374 8185
Fax: +64 9 302 0992
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