Credit downgrade for four economic powers

Credit insurer Coface has downgraded the credit rating of four of the countries considered to be the economic powers in the Australasia region. The downgrades suggest a significant change in the credit security of businesses in a region which, until now, has withstood the pressures of the global financial crisis better than Europe and the US, says Coface South Africa marketing manager, Natasha Hardy. Australia, New Zealand, Taiwan and Hong Kong have all been downgraded in the company’s latest credit review. And while the reasons differ for each country, there is general concern about the economic stability of the region. The most drastic downgrade is Australia which has slipped from A1 to an A2. The major contributor to Australia succumbing to the global financial crisis has to do with its large scale exports of raw materials to China. With China starting to feel the global slowdown, its imports of raw material have dropped dramatically, contributing to the economic slump. The slowdown in the Australian economy has negatively affected New Zealand’s economy to the extent that Coface has downgraded New Zealand’s business credit rating from an A1 negative watch to A2. Australia is also directly linked to the economy of Hong Kong through a strong import and export relationship. Australian businesses are no longer able to extend the same credit terms to business partners in Hong Kong purchasing Australian goods. In addition, Australian businesses are importing less from Hong Kong. The slowdown is further exacerbated by Hong Kong’s trade relationships with mainland China which has also slowed. As a result, Coface has downgraded Hong Kong from an A1 negative watch to an A2 rating. Taiwan is another region that has been downgraded by Coface. Taiwan and Australia have a profitable informal trade relationship which includes the import from Taiwan into Australia of fuel and telecommunications/ IT infrastructure. With the combined slowdown in the Australian economy, the impacts of the Chinese economy and the fluctuations in oil price, Taiwan has also been downgraded from an A1 negative watch to an A2 rating. The downgrade of the Australasia region as a whole, while reflective of the global slowdown, is cause for concern. Coface will be watching the default indices of these countries with interest over the next 3 to 6 months, Hardy said.