New Zealand’s economic outlook ‘stable’, retains AAA and AA+ credit ratings

Global ratings agency Standard & Poor’s (S&P) has affirmed New Zealand’s AAA local currency and AA+ foreign currency credit rating, saying the outlook for the country is stable.

S&P said it expected the country’s fiscal deficit to narrow over the next three years as Covid-19-related spending measures came to an end.

“Net general government debt will stabilise at a level that is modest compared with that of most highly rated sovereign peers,” S&P said.

“New Zealand has tipped into recession, and higher interest rates will dampen growth. However, a slowing economy should constrain demand for imports, helping to alleviate the current account deficit.”

The ratings agency said the stable outlook on its long-term credit ratings on New Zealand reflected its high assessment of various factors relating to the country.

“The country’s excellent institutions, wealthy economy and moderate public indebtedness will balance credit risks associated with a large current account deficit, high levels of external and private-sector debt, and volatile property prices over the next two years.”

However, S&P said it could lower its ratings on New Zealand if the fiscal deficit did not narrow as forecast, which would push up government debt and interest costs; if the country had “persistently weak current account deficits”; or if growth was “materially weaker” than other developed nations on a regular basis.

On the upside, S&P said it could raise its rating if New Zealand’s financial metrics “materially strengthen”.

“Indications of this strengthening would include the general government deficit contracting to less than 3 percent of GDP (gross domestic product), and net general government debt or interest expenses falling on a structural basis to less than 30 percent of GDP and 5 percent of government revenues, respectively.”

S&P also forecast New Zealand’s economic growth to slow to 0.2 percent in 2024 and average about 2.5 percent per year over the subsequent years.

It expected the country’s annual inflation rate to gradually fall to the Reserve Bank’s 1-3 percent target band over the next years.