NZ economy on track, agency says

New Zealand banks were able to withstand the global crisis. Photo / Richard Robinson

Credit rating agency Moody's has re-affirmed New Zealand's Aaa rating and its stable outlook.

The country's major vulnerability was its dependence on foreign capital inflows, and its high level of external debt, Moody's said.

But the performance of New Zealand's external finances during the global crisis demonstrated that even in times of financial stress its financial vulnerability remained very low.

"New Zealand's bank had only a very short period at the height of the financial crisis when there was any question about [international credit] market access."

Moody's rates the country's economic strength as high, rather than very high like other Aaa-rated countries.

That reflects the relatively small size of the economy, its reliance on agricultural commodities for a large proportion of economic activity and exports and its lower-than-average per capita income.

Moody's expects growth to be weaker than the annual average rate of 3.3 per cent between 2000 and 2007, with households more reluctant to take on debt from a "fairly high" level and the Government tightening the fiscal belt after a period of stimulus. "The Government faces the prospect of an extended period of fiscal consolidation after the ending of economic stimulus," Moody's said.

"Thus, although exports may provide some underpinning of growth, and business investment should revive, growth rates are likely to be lower than during the years leading up to the global financial crisis."

The stable ratings outlook is anchored by the Government's low debt, relative to most Aaa-rated countries, and by its belief that fiscal and monetary discipline and market-oriented policies will continue, Moody's said.

"Moody's believes that the Government, of whichever party, will maintain a policy of low debt and fiscal soundness," it said.

Net government debt, which had fallen below 6 per cent of gross domestic product (GDP) by 2008, has risen to 14 per cent and was expected to peak at 27 per cent in 2015 before a return to surpluses sees it decline.

Gross government debt as a proportion of GDP was forecast to rise to the 32-33 per cent range during 2011-14 before beginning to decline, the report said.

Moody's did not expect the impact of the Canterbury earthquake "to be of a magnitude that would cause rating concerns".

MOODY'S REPORT

The credit rating agency says:
* New Zealand's vulnerability remains low, even in terms of financial stress.
* Economy's strength is "high" but not "very high".
* Growth going forward expected to be weaker than the 3.3 per cent average between 2000 and 2007.
* Government, of whichever party, expected to retain fiscal discipline.