Booming NZ services sector offsetting lower commodity prices, says Moody's

Thursday 11th February 2016

Moody's Investors Service is comfortable with its Aaa credit rating on New Zealand with a stable outlook, as it anticipates the impact from lower commodity prices will be offset by strength in areas of the economy such as tourism and education services.

"Despite the problems we see in the rest of the global economy, particularly problems for commodity exporters, New Zealand is doing quite well, the economy is very resilient to the global environment right now and we see there is a lot of activity in the service sector that is offsetting whatever negatives there are in the dairy industry at the present time. Overall the economy is doing very well and financial markets are viewing New Zealand very favourably," Steven Hess, Moody's senior vice president, sovereign risk group, told a media briefing in Wellington.

"It (low dairy prices) is a negative for the economy, definitely, no doubt about it, it's a price adjustment but it's not so large though that we think it's going to cause some sort of crisis," he said, adding that dairy debt made up only a small part of bank assets.

"New Zealand has strengths that I think make it resilient to the global economy at the present time," Hess said, citing falling government debt that is below other similarly rated countries, improving prospects for service exports such as tourism and education, and booming immigration.

"There are all these positive aspects that are offsetting any negatives that are coming from the farm sector," he said.

Should the economy weaken, government finances are strong and it could use its balance sheet to offset any potential shocks, while the Reserve Bank also had the ability to lower interest rates if needed, he said.

"We are not seeing big risks," Hess said.

A correction in the housing market, particularly in Auckland, remained a risk although Moody's didn't rate that risk very high, given prices were underpinned by demand from strong immigration, he said.

BusinessDesk.co.nz

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