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Downed Malaysian Plane Could Impact NZ Economy

MEDIA RELEASE: Wednesday July 23, 2014

Downed Malaysian Plane Could Impact NZ Economy

The shooting down of Malaysian Airways flight MH17 over Ukraine may yet have an impact on New Zealand’s economy, says a Russian economist from Massey University.

Associate Professor Sasha Molchanov says that while the tragic crash happened on the other side of the world, its impact on public sentiment and international relations will have global reach.

“An event like this can definitely affect New Zealand’s economy,” Dr Molchanov says. “Even thought the investigation is far from over, negative public sentiment is very strong and European and Australian-led sanctions are a distinct possibility.

“Our economy may also be hit by volatility in the global equity and exchange rate markets. Because risk sentiment is strong, and the New Zealand dollar is a high-yielding currency, it may experience a drop in demand.”

But Dr Molchanov says few New Zealand companies will be directly affected by the crash of MH17.

“New Zealand exports to Russia are fairly modest at about $260 million per year, or 0.5 per cent of our overall export volume, and it is unlikely that New Zealand will impose bilateral trade sanctions,” he says.

“Meanwhile, the free-trade agreement negotiations with Russia had already been suspended, thanks to the previous crisis in Crimea, although this latest incident will mean negotiations will not re-start any time soon.”

This is a blow to any exporters eyeing up the Russian market.

“Even though export volumes are currently small, they had been growing consistently until the eruption of tensions between Russia and Ukraine. The future of that export growth is now in jeopardy,” Dr Molchanov says.

He says exporters to politically-risky countries always face the prospect of their operations being compromised by an adverse political event, but the situation in Ukraine and Russia is particularly severe.

“One way to measure the severity of a political crisis is by the number of nations involved – and that number has increased dramatically in the wake of this crash.

“If there is a silver lining here, it is that the intense public pressure to investigate what happened to MH17 may help to bring hostilities to an end.”

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