FRIDAY GRAPH: CIAO DOLLAR?

A spate of Sovereign credit downgrades is occurring, with Italy featuring prominently this week following New Zealand’s downgrades the week before.

This week’s chart shows how fundamentally different the situation is in one vital respect between New Zealand and Italy.

In contrast to Italy, and the OECD as a whole, New Zealand does not have a public debt problem (yet, but watch this space given our underlying fiscal deficit).

Whereas 11 countries in the chart have net public debt at or above 50 percent of GDP, New Zealand’s ratio is only 4 percent of GDP according to OECD projections for 2011.

New Zealand has been downgraded for external debt reasons, but since the vast bulk of this debt is between private borrowers and lenders–who have every reason in 2011 to balance risk and return carefully and judiciously–this is a very different situation from that facing Italy and the ten other countries in the chart where government debt is clearly the problem.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s