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28 Jan 2014
Moody's: New Zealand's economy and finances improving
FXstreet.com (Bali) - According to Moody's rating agency, New Zealand's economy and government finances are on an improving trend, although it also recognizes that the country's creditworthiness face various challenges.
Moody's official announcement
Economic growth is accelerating, partly due to earthquake reconstruction, with real GDP expected to increase by 3% in 2014, while the government budget is forecast to be in a balanced position in the 2014-15 fiscal year and in surplus thereafter.
Such a scenario means that the ratio of government debt to GDP will peak below the median for Aaa-rated sovereigns and stabilize thereafter, and Moody's further notes that the government aims for a significantly lower debt level by the end of the decade.
The conclusions were contained in Moody's just-released annual credit analysis titled "New Zealand". The report is an annual update to investors and is not a rating action. The sovereign is rated Aaa with a stable outlook.
With the four key factors behind the rating, New Zealand's Economic Strength is assessed as High (+); Institutional Strength as Very High (+); Fiscal Strength as Very High; and Susceptibility to Event Risk as Low (-).
In terms of challenges to the country's creditworthiness, these include a continuing reliance on foreign savings to finance relatively large current account deficits, which have been evident for the past four decades, according to the report. As a result, New Zealand's major vulnerability -- despite the absence of any problems in accessing the global capital markets -- is its dependence on foreign capital inflows, and its negative net international investment position is the largest of any Aaa-rated country. However, Moody's notes that a large portion of these liabilities belong to the subsidiaries of Australian banks and, given the strength of the parents, these are unlikely to represent a significant risk to the sovereign.
On the prospects for the budget, the report, quoting IMF figures, says the government posted deficits of 5% of GDP in 2010 and 2011 as a consequence of the economic effects of the global financial crisis and the Canterbury earthquakes. These deficits came after several years of fiscal surpluses, which reflected the prudent fiscal stance of New Zealand governments, and this commitment to countercyclical policy is likely to allow the government to achieve its target of balancing the budget over the next few years.
Banking sector risk is assessed as Low (-), and New Zealand's banking system is one the highest rated by Moody's with an average Baseline Credit Assessment of a3 and average long-term issuer ratings of Aa3. The New Zealand banking system reported total assets of NZD406 billion ($333 billion), equivalent to 194% of GDP, as of 31 December 2012.
Looking ahead, New Zealand's Aaa government bond rating could move downward if economic growth is lower than now forecast in the coming few years and, as a result, government debt ratios do not improve as expected
Moody's official announcement
Economic growth is accelerating, partly due to earthquake reconstruction, with real GDP expected to increase by 3% in 2014, while the government budget is forecast to be in a balanced position in the 2014-15 fiscal year and in surplus thereafter.
Such a scenario means that the ratio of government debt to GDP will peak below the median for Aaa-rated sovereigns and stabilize thereafter, and Moody's further notes that the government aims for a significantly lower debt level by the end of the decade.
The conclusions were contained in Moody's just-released annual credit analysis titled "New Zealand". The report is an annual update to investors and is not a rating action. The sovereign is rated Aaa with a stable outlook.
With the four key factors behind the rating, New Zealand's Economic Strength is assessed as High (+); Institutional Strength as Very High (+); Fiscal Strength as Very High; and Susceptibility to Event Risk as Low (-).
In terms of challenges to the country's creditworthiness, these include a continuing reliance on foreign savings to finance relatively large current account deficits, which have been evident for the past four decades, according to the report. As a result, New Zealand's major vulnerability -- despite the absence of any problems in accessing the global capital markets -- is its dependence on foreign capital inflows, and its negative net international investment position is the largest of any Aaa-rated country. However, Moody's notes that a large portion of these liabilities belong to the subsidiaries of Australian banks and, given the strength of the parents, these are unlikely to represent a significant risk to the sovereign.
On the prospects for the budget, the report, quoting IMF figures, says the government posted deficits of 5% of GDP in 2010 and 2011 as a consequence of the economic effects of the global financial crisis and the Canterbury earthquakes. These deficits came after several years of fiscal surpluses, which reflected the prudent fiscal stance of New Zealand governments, and this commitment to countercyclical policy is likely to allow the government to achieve its target of balancing the budget over the next few years.
Banking sector risk is assessed as Low (-), and New Zealand's banking system is one the highest rated by Moody's with an average Baseline Credit Assessment of a3 and average long-term issuer ratings of Aa3. The New Zealand banking system reported total assets of NZD406 billion ($333 billion), equivalent to 194% of GDP, as of 31 December 2012.
Looking ahead, New Zealand's Aaa government bond rating could move downward if economic growth is lower than now forecast in the coming few years and, as a result, government debt ratios do not improve as expected