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Economic Outlook Remains 'Stable': New Zealand's Credit Rating Stays At AAA and A++
A recent assessment of New Zealand's credit rating has reinforced the country's long-term economic health to remain 'stable.'
Standard and Poor (S&P), a global credit ratings agency, has maintained New Zealand's AAA local currency and AA+ foreign currency credit ratings. The country's fiscal deficit is also expected to narrow over the next three years.
According to S&P, this is partly due to the end of COVID-19 spending measures that have improved government debt.
"Net general government debt will stabilise at a level that is modest compared with that of most highly rated sovereign peers."
S&P is the latest independent credit rating company to endorse the New Zealand government's overall management of the country's economy – despite the gloomy global outlook. Other independent agencies that have affirmed New Zealand's local and foreign currency rating and stable economic outlook include Fitch Ratings and Moody's Investors Service.
"The country's excellent institutions, wealthy economy and moderate public indebtedness will balance credit risks associated with a large current account deficit, high levels of external and private-sector debt, and volatile property prices over the next two years," S&P said.
Although the nation is cautiously dealing with interest rate hikes from New Zealand's Reserve Bank, it should provide an indirect positive effect on credit ratings.
"New Zealand has tipped into recession, and higher interest rates will dampen growth. However, a slowing economy should constrain demand for imports, helping to alleviate the current account deficit."
Credit Ratings Could Go Lower
Despite the top scores, S&P cautioned that it would consider lowering the country's ratings if the fiscal deficit fails to narrow as projected.
If the country shows "persistently weak current account deficits" and if growth is "materially weaker" than other developed nations on consistent levels, then it could increase government debt and interest costs.
The American credit rating company also forecasts New Zealand's economic growth to record a slow growth at 0.2% in 2024 and remain at 2.5% annually for each subsequent year. Not surprising when considering the global economic outlook.
Additionally, S&P foresees a gradual decline in the country's annual inflation rate, meeting the Reserve Bank's target band of 1% to 3% in the coming years.
On a positive note, S&P mentioned that its ratings could increase if the nation's financial metrics "materially strengthen." A spokesperson for the company highlights what's needed for it to rise.
"Indications of this strengthening would include the general government deficit contracting to less than 3% of GDP, and net general government debt or interest expenses falling on a structural basis to less than 30% of GDP and 5% of government revenues, respectively."
What This Means for Kiwi Businesses
Despite the unsettling interest rate hikes many local businesses face, this news offers a positive economic outlook. It's advised that business owners still be prudent with their assets and consider strategies that can help them mediate any uncertainties.
By closely monitoring the latest economic indicators and protecting their assets with the right partners, they can better position themselves to weather any economic challenges.
Bonded NZ helps business owners remain efficient in economic uncertainties through comprehensive and tailored business insurance. Whether it's public liability or professional indemnity insurance, our cost-effective options help them secure their business at every angle.
For more information about our services, contact our team today.