Sharechat Logo

Standard & Poor's lifts NZ's outlook to positive

Thursday 31st January 2019

Text too small?

Standard & Poor's Global Ratings revised New Zealand's outlook to positive on its improving fiscal position.

New Zealand's government budget could achieve a surplus in the early 2020s, which would provide additional resilience to macroeconomic or financial sector risks should they arise, the rating's agency said.  

"As a result we are revising our outlook on the sovereign long-term ratings to positive from stable." 

The kiwi remained firm against the US dollar on the news, last trading at 69.01 US cents. 

S&P affirmed both its 'AA/A-1+' foreign currency and 'AA+/A-1 local currency sovereign credit ratings on New Zealand. The one-notch distinction between the long-term foreign currency and local currency ratings is because of the credibility of the country's monetary policy, the freely floating currency, and the depth of domestic debt markets, it said. 

According to the ratings agency, New Zealand has fiscal and monetary policy flexibility, economic wealth and resilience, and stable public policy settings.

"These strengths provide the country with flexibility to offset potential risks related to its large external imbalances, high household and agriculture sector debt, dependence on commodity income, and financial system stability," it said. It expects smaller deficits and solid economic growth to result in net general government debt declining to less than 19 percent of GDP in fiscal 2022, from 20 percent in fiscal 2020. 

It noted, however, the high level of external liabilities remains New Zealand's main credit weakness. It expects current account deficits to remain stable at about 3.3 percent of GDP between 2019 and 2021, after narrowing briefly in 2016-2017. "While such deficits are not out of the ordinary for New Zealand from a historical perspective, they are high as a proportion of our preferred measure, current account receipts (CARS), at about 10 percent per year between 2019 and 2021."

As a result, S&P expects the economy's external debt - net of official reserves and financial sector external assets - to remain very high compared with peers.  It said the large market for nonresident offshore issuance in New Zealand dollars, which affects demand for the currency, is also a risk, as is the nation's net external liabilities as a share of CARs. "We also forecast New Zealand's gross external financing needs to remain very high compared with peers," it said.

It noted, however, a mitigating factor is the depth of the New Zealand dollar foreign-exchange market and its exchange-rate flexibility.

Regarding the housing market, it said housing-related imbalances facing New Zealand's financial system have stabilized, as reflected in the slowdown of rapidly increasing residential house prices and private sector credit, and the maturing of the credit cycle. 

It did note, however, the risk of a sharp correction in property prices remains elevated.

"If a fall were to occur, the impact on financial institutions would be amplified by the New Zealand economy's external weaknesses - in particular its persistent current account deficits," it said.  

Standard & Poor's said it could revise the outlook to stable within the next two years if the general government budget does not achieve surplus in the early 2020s.

(BusinessDesk)



  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comment:
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

Now is the time to reassess your investments
Now is the time to reassess your investments
Fonterra looking to lift China's importance in new strategy
A2, Synlait shares climb as takeover bid revives optimism about Chinese appetite for milk
Service sector activity eases in August but still expanding
Lumpy imports drive bigger July trade deficit than expected
Nimbys, carparks and the status quo under threat as govt tells big cities: grow up and out
Dairy manufacturers got better prices in June quarter
Orr defends RBNZ rate cut, says monetary policy looks ahead, not behind
RBNZ's Orr says investors need to put their money to work