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Global Credit Research - 24 Mar 2016
New York, March 24, 2016 -- Moody's Investors Service says that New Zealand's economy
is growing relatively strongly, despite a steep fall in dairy prices
during the past two years.
Construction, partly in relation to the ongoing rebuilding of Christchurch
after the 2011 earthquakes but also in the Auckland housing market,
has been an important contributor to this growth.
After an increase of more than 3% during 2015, growth appears
set to remain relatively robust through 2016, with net immigration
at record levels and tourism performing strongly.
The strong economic profile is reinforcing government finances,
the government's operating balance having returned to a small surplus
in 2014-15 and only a small deficit is forecast for this fiscal
In addition, the ratio of government debt to GDP has stabilized
at a level well below the Aaa sovereign median and is likely to decline
over the next several years. As a result, New Zealand's
Aaa rating has a stable outlook.
Moody's conclusions were contained in its just-released,
Government of New Zealand -- Aaa Stable. The report is an
annual update and does not constitute a rating action.
The Credit Analysis elaborates on New Zealand's credit profile in
terms of Economic Strength (Very High); Institutional Strength (Very
High (+)); Fiscal Strength (Very High (+)); and Susceptibility
to Event Risk (Low (-)). These are the four main analytic
factors in Moody's Sovereign Bond Rating Methodology.
The report says that New Zealand's most important vulnerability
is the structural current account deficit, which has been relatively
large for several decades. This deficit means that the country
as a whole is highly dependent on the international capital markets.
We expect the current account deficit to be below historical averages
for a few years, somewhat reducing New Zealand's external vulnerability.
Nonetheless, its net external liability position will remain the
highest among Aaa-rated sovereigns.
In recent years, the steep increase in government debt was credit
negative for New Zealand, although Moody's rating remained
unchanged. In the future, should there be a reversal of the
government budget balance and the trend in the debt ratios, the
rating could come under downward pressure. However, our baseline
case is that debt ratios, after stabilizing, will be on a
The Moody's report further points out that, despite sustained
2.0-3.0% growth in 2011-2015,
the track-record of stable near-potential growth will likely
give way to higher growth volatility when labor-input tailwinds
Over the long run, however, we see no structural impediments
for continued consumption-driven expansion. So, while
the strength of some of the tailwinds that supported consumption growth
in the past decades, such as credit deepening, greater integration
into international trade, and high employment levels may be subsiding,
we still expect them to play a leading role in driving New Zealand's
economic growth going forward.
On the issue of the agricultural sector, after benefiting from a
positive price shock in 2013 and early 2014, it has become further
entrenched as the main source of export revenue for New Zealand,
although tourism is catching up in terms of its share of total foreign-exchange
In the 12-month period ending December 2015, agriculture,
forestry, fishery, food and other animal- or plant-originated
products represented 72% of total merchandise exports, up
from 65% in 2010 and 59% in 2000.
While more concentrated in its foreign trade than most other developed
economies, and, therefore, more exposed to terms of
trade shocks, New Zealand demonstrates some degree of diversity
among individual groups of products within its largest segment of exports.
Despite a high share of milk products -- over one third
of agricultural and related exports -- New Zealand compares
favorably to highly rated Gulf Cooperation Countries whose exports tend
to be concentrated in a single product rather than a range of products.
With an estimated 2015 GDP of US$171.3 billion, New
Zealand is the second smallest Aaa-rated issuer in Moody's
sovereign portfolio after Luxembourg and the sixth smallest in the Aaa-Aa
range. However, at over 400% of the global median
for nominal GDP, its economy can still be characterized as medium
sized in a global context.
This publication does not announce a credit rating action. For
any credit ratings referenced in this publication, please see the
ratings tab on the issuer/entity page on www.moodys.com
for the most updated credit rating action information and rating history.
Steven A. Hess
Senior Vice President
Sovereign Risk Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
Associate Managing Director
Sovereign Risk Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Moody's: New Zealand's economy continues to see moderate growth
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
No Related Data.
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