Optimism about New Zealand in the recovery from the current slump from global ratings agency Moody’s.
The ratings group says NZ’s low Government debt puts it in a good position to navigate the recovery from the COVID-19 disruption.
It has reaffirmed New Zealand’s Aaa rating as the country moved up to a level 3 rating on the government’s response to the pandemic.
That will see around 400,000 New Zealanders heading back to work on Tuesday.
Prime Minister Jacinda Ardern said in media interviews published on Tuesday that there is a good chance New Zealand won’t stay in.
COVID-19 alert level 3 lockdown for long, but that everyone will need to do their bit by not socialising.
She said New Zealand appeared to be in the “tail” of the coronavirus epidemic, and if it could keep numbers down that would make moving on from level 3 more likely.
“That tail is tricky, but as long as we can keep those numbers down, then our chances of spending less time in [level] 3 are good, but I can’t predict it,” she told Stuff NZ.
Just five new cases of CV-19 were reported in NZ on Monday.
New Zealand is currently scheduled to spend two weeks in level 3 lockdown before the Government decides what to do next, with relaxed restrictions on takeout food and going to work or school, but not socialising.
Moody’s said the Government had a large degree of fiscal headroom to increase spending in the coming years to support the recovery.
While this would lead to higher debt and fiscal deficits, Moody’s said the commitment to responsible fiscal management meant this was manageable.
At 27.8% of GDP in 2019, New Zealand’s debt burden was lower than that of comparable countries, it said – slightly behind Switzerland. It had been below the median over the past 10 years.
Government debt hit a high of 37% in 2012 but the Government maintained fiscal surpluses between 2016 and 2019, Moody’s noted in its report.
“While the global coronavirus outbreak presents unprecedented challenges to New Zealand’s economy, the Government has promptly deployed its fiscal capacity to buffer the impact of the shock. Institutional effectiveness mitigates vulnerabilities related to reliance on external financing and elevated household debt,” Moody’s said.
“We expect the economy to remain resilient in the face of shocks, given its trade openness, diverse and competitive agricultural export base, flexible labour and product markets, high wealth levels and supportive demographics, driven by robust net immigration.
“These attributes underscore New Zealand’s medium-term growth potential of around 2.5 percent to 3 percent, higher than many advanced economy Aaa-rated peers.
“New Zealand’s external risks stem from its commodity dependence and net international liabilities, which have narrowed, but remain large compared with Aaa-rated peers at around 55 percent of GDP. A flexible exchange rate, over one-half of external debt obligations denominated in local currency, and banks’ reduced reliance on short-term external funding all mitigate potential credit risks.”
Moody’s said the New Zealand Treasury had a strong record of managing shocks and was expected to demonstrate fiscal discipline over the long term.
It comes after a report from Fitch which said New Zealand was likely to hit a 4.8% -of-GDP deficit in the year to June, but was in an overall healthy fiscal position after years of consistent surpluses.
In a report issued in early April, Fitch said it expected GDP to shrink in both Australia and New Zealand in the first half of 2020 with only a modest recovery starting in the second half and extending into 2021.
Unemployment was likely to spike sharply in both countries and remain very high relative to pre-pandemic levels even after the recovery is underway.
