NZ's Aaa rating supported by very high economic resilience

Moody's: New Zealand's Aaa rating supported by very high economic resilience, effective institutions and policies and strong fiscal metrics

Singapore, April 05, 2017 -- Moody's Investors Service says that New Zealand's Aaa rating and stable outlook are supported by the sovereign's very high economic resilience, and a strong fiscal position compared to peers. Combined with effective institutions and policies, these credit strengths mitigate New Zealand's vulnerability to shifts in external funding or a turn in the housing market..

High income levels, robust population growth and continued strong Asian demand for New Zealand's products and services, including dairy, tourism and education, support the country's very high economic strength.

As such, Moody's expects real GDP growth of around 3.0% through 2017 and 2018, above the Aaa median of 2.0%.

Moody's conclusions were contained in its just-released annual credit analysis, "Government of New Zealand -- Aaa Stable".

This 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 (+), which are the four main analytic factors in Moody's Sovereign Bond Rating Methodology. It does not constitute a rating action.

Longer term, New Zealand's potential GDP growth is higher than many Aaa-rated sovereigns. In particular, it benefits from a more favourable demographic profile than in most of its peers.

New Zealand's merchandise exports are concentrated towards agricultural products -- with food and live animals comprising about 54% of total goods exports in 2016. However, according to Moody's, although 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.

The sovereign's strong economic profile reinforces the robust state of New Zealand's government finances, with the budget now returned to a small surplus and the gross debt-to-GDP ratio stabilised at around 30%, below the Aaa-rated median.

Further ahead, we expect the broad consensus on fiscal discipline will continue to deliver on its goals of maintaining budget surpluses and reducing debt over the medium term.

New Zealand's vulnerabilities include its large reliance on external financing and banking sector risk related to elevated household debt.

Nevertheless, the very high strength of the institutions and the proactive implementation of policies help mitigate these two risks.

As implied by the stable outlook, credit risks are balanced. New Zealand's Aaa rating could move down over the medium term if a large external or domestic shock, perhaps stemming from a natural disaster, a housing market correction or a sharp fall in global trade, were to result in a sustained upward trend in government debt that was not reversed in the following years.

Such an outcome would imply diminished fiscal and institutional strength; it would also undermine the health of the banking system by damaging access to external finance.

Subscribers can read the full report at:

http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1059857

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