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Moody's expects further reforms to boost economy under new PM English

Monday 12th December 2016

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Moody's Investors Service says New Zealand's strong public finances have given it significant flexibility to deal with negative shocks and it expects further economic reforms under the new Prime Minister Bill English. 

The ratings company said it expects "policies and reforms that foster economic growth and maintain sound public finances to remain a key focus under a new leadership," basedon its analysis of last week's half-year economic and fiscal update. 

The half-year fiscal update, published on Dec. 8, saw the government earmark an extra $2.1 billion for capital spending in Budget 2017 due to stronger forecast economic growth delivering a higher tax take. Real gross domestic product is expected to grow 3.6 percent in the year to the end of June 2017. 

Moody's said it expects government spending on social assistance and quake costs to increase, but the economy will benefit from a better-than-expected performance and improvements in the terms of trade. It expects revenue to rise from recovering dairy prices, higher migration, increased tourism and reconstruction. 

However, the agency noted the government forecast of average annual GDP growth of 3.5 percent over 2017 and 2018 is higher than its own prediction and suggests some downside risk to the revenue projections. 

Moody's also said "stronger fiscal surpluses in the outer years will be based primarily on expenditure restraint. Although this may be challenging given large spending commitments on health, education, social security and welfare, we expect slippages, if any, to be small."

The agency's rating of New Zealand's bonds (Aaa stable) remains unchanged.

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