Unlike the worst fears of her critics, the NZ Labour-led government of PM Jacinda Arden has not been bad for the country’s economy or its credit rating.
In fact at a time when the outlook for its biggest markets in Asia is mixed (especially in China), ratings group, Standard & Poor’s upgraded New Zealand’s credit outlook to a ”positive” saying expected budget surpluses in coming years would allow the country to reduce its debt and provide resilience to future risks, Reuters reported.
S&P reaffirmed its sovereign credit rating at AA+, the second highest, and revised its outlook from stable to positive. Fitch has an AA+ rating while Moody’s has an Aaa rating.
Australia is on a AAA stable rating from S&P, Fitch and Moody’s.
“The positive outlook on the long-term ratings on New Zealand reflects our view that the general government budget could achieve a surplus in the early 2020s,” S&P said.
“This would reduce net general government debt and provide additional resilience to macroeconomic or financial sector risks that could arise due to high levels of external and domestic leverage,” it said.
Finance Minister Grant Robertson said the change underlined the position of New Zealand’s economy.
“I do think it’s really important to remember the fundamentals of the New Zealand economy are strong. We have extremely low levels of debt compared to the rest of the world, he said in a statement.
S&P said it expected real economic growth to slow to 2.8% per year between this year and 2021, down from 3.5% over the past few years, as immigration fell and population growth slowed from its record level of more than 2%.
But New Zealand’s “per capita” economic growth of about 1.4% continued to “outpace” the 1% growth in countries with similar credit ratings.
“Accommodative monetary policy, population growth, higher wage outcomes and higher government spending” and a decline in the New Zealand dollar, was continuing to support growth, it said.
“We don’t believe trade tensions between New Zealand’s major trading partners will currently have a substantial impact on the country’s economy and external performance, particularly given that key exports are imported for domestic consumption in China, rather than for re-exporting.”
But S&P said “headwinds” included business confidence remaining weak due to “policy uncertainty”. That would not be foreign to comments about Australia, for example.
Risks stemming from rising property prices and household debt appeared to have stabilised since 2017, it said.
