Understandably enough, the World Cup has a virtual monopoly on public attention at the moment. Yet even that cannot totally distract from a string of bad economic tidings. When the winner of the Webb Ellis Cup is finally known, some grim realities will have to be confronted. In the span of the tournament, relatively benign forecasts have had to be replaced by warnings of heavy weather ahead.

Before the start of the World Cup, the Finance Minister, Bill English, proclaimed that, while the global economic outlook might be uncertain for the next five years, New Zealand was in good shape to deal with it. An initial shot across the bow by credit rating agency Standard & Poor's had barely disturbed his equanimity. In the past week, however, the Government's tune has changed.

First came an admission from the Prime Minister that he had virtually abandoned hope of returning to surplus earlier than 2014-15. While Asia's growth had enabled the New Zealand economy to be resilient, it could not be totally immune from the tough times in the United States and Europe, he said. Later in the week, there was even more cause for concern when Standard & Poor's and another rating agency, Fitch, lowered New Zealand's credit rating by one notch to AA and expressed concern over its high external debt in a volatile global economy.

In one way, the timing of their statements seemed odd. There was no obvious trigger. Indeed, over the past six months the country's external debt liabilities have dropped from $180 billion, or 82 per cent of gross domestic product, to $140 billion (70 per cent of GDP). Yet that still leaves the economy vulnerable as global conditions become more tempestuous. It has also, as Mr English suggested, left this country exposed to financial markets' greater sensitivity to debt.

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This sentiment was underlined by Christine Lagarde, the head of the International Monetary Fund, when she spoke of "a dangerous new phase" in the global crisis. "Weak growth and weak balance sheets - of governments, financial institutions and households - are feeding negatively in each other, fuelling a crisis of confidence and holding back demand, investment and job creations," she said.

While this country's government debt level is relatively low, household indebtedness, a legacy of the property boom, is a different story. To a degree, the rating agencies' decision reflects an impatience with the Government's moves to address that. Some fund managers were quick to suggest this should be the catalyst for KiwiSaver to be made compulsory. While there is a strong strain of self-interest in this, it does not necessarily invalidate their argument.

Clearly, to meet the rating agencies' concerns, New Zealand must lift its savings. A compulsory KiwiSaver would create a bigger domestic borrowing pot, thereby reducing this country's vulnerability. It must also hope that the exports which have underpinned its buoyancy, continue to flow. In that respect, the rating agencies' declarations could actually help by lowering the exchange rate. There is a sizeable raft of downside risks, however.

If the situation in the US and Europe deteriorates further and a crisis of confidence envelops them, their demand for imports, including those from Asia, will slump. In that scenario, there would be an inevitable flow-on to this country's exports to Asia, and a reduction in the price for commodities. Further problems in Europe could also raise funding costs for New Zealand banks, leading to higher rates for borrowers.

As yet, there is no sign of a 2008-style panic that would mean such fears were realised. But it hardly augurs well when a long period of global stagnation is the best option on the block.

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