New government's policies may damp migration, housing but NZ economic prospects stable: Moody's
By Rebecca Howard
Oct. 31 (BusinessDesk) - Moody's Investors Service has retained its stable outlook for New Zealand's banking system and
said while potential changes to government policies could have an impact on migration and housing it expects economic
prospects and asset quality to remain strong in the next 12-to-18 months.
The operating environment will "remain favorable" and the banking system's asset quality will be supported by strong
economic conditions, low interest rates and a recovery in milk prices, said Daniel Yu, a Moody's vice president and
senior analyst, in a note.
Moody's expects New Zealand's real gross domestic product to grow 3 percent in 2017 and 2.8 percent in 2018. "Although
growth will slow from 2016, it will remain strong compared to New Zealand’s global peers," Yu said.
The country's economic growth will continue to be driven by net immigration, construction, and tourism, in addition to
low interest rates, Yu said. While housing market risks remain high "they are unlikely to significantly undermine the
system’s stability over this outlook period," he added.
Moody's said strong net immigration could slow if relative income prospects improve in Australia, where wages are
higher, but that's unlikely to occur in the next few years.
Also, while "potential changes to government policies on migration, following the new coalition government, could also
potentially lower net migration," it expects population growth to remain stronger than in other advanced economies.
On the housing front, the ratings agency noted elevated levels of household leverage are showing some "initial signs of
moderating" after the central bank imposed a series of macro-prudential tools to take some of the heat out of the
market. However, it "continues to pose a key risk," it said.
Moody's said it remains to be seen how effective the latest measures will be in slowing house price appreciation in the
long term against the backdrop of strong immigration, ongoing housing shortages and low-interest rates.
However, the agency said potential policies on housing from New Zealand’s new government, such as reductions in net
migration and restrictions on house purchases by non-residents, could also contribute, or may even accelerate, the
current moderation in house price growth.
Moody's rates eight of New Zealand's 15 locally incorporated banks including ANZ Bank New Zealand, ASB Bank, Bank of New
Zealand, Westpac and Kiwibank. It also rates the Industrial and Commercial Bank of China, China Construction Bank and
the Bank of China. These eight banks account for 90 percent of total system loans.