S&P raises NZ's credit ratings, sees property prices moving higher

Monday, 22 February 2021

S&P sees New Zealand’s economy as being on the up.

Standard & Poor’s has raised New Zealand’s credit ratings back to a level last seen in 2009 as a result of its strong recovery from the Covid crisis.

The credit ratings agency raised the ratings of New Zealand’s foreign and local currency government debt by a notch to ‘AA+’ and ‘AAA’, respectively, from ‘AA’ and ‘AA+’.

Both ratings come with a stable outlook attached, making them the best ratings New Zealand has had from S&P for almost 12 years, when it last had the same marks.

Higher sovereign credit ratings typically make it easier for governments to borrow more money at a lower interest rate as well as boosting economic confidence more generally.

Economic growth and low interest rates will continue to drive property prices higher over the next six months. S&P forecasts.

* Standard & Poor's sees 'bridge to recovery' in New Zealand

* Govt debt levels position NZ well for Covid-19 recovery, ratings agency says

S&P cautioned that the country’s financial system remained susceptible to a sharp correction in property prices, but indicated it didn’t see that on the horizon.

Instead, it forecast that economic growth and low interest rates would continue to drive property prices higher in the next half year, with the effect of the revised loan-value-restrictions imposed by the Reserve Bank taking “some time to flow through” to prices.

S&P said New Zealand had been able to recover quicker than most advanced economies because the country had been able to contain the spread of Covid-19 better than most others.

“We now believe that the Government's credit metrics can withstand potential damage from negative shocks to the economy, including a possible weakening of the real estate market, and its fiscal position at the 'AA+' rating level,” it said.

“New Zealand's monetary flexibility, wealthy economy, and institutions are conducive to swift and decisive policy actions and offset the country's external imbalances.”

Although S&P attached a “stable outlook” to the new credit ratings, it cautioned it could lower the ratings if the Government’s fiscal deficits were substantially weaker than forecast.

“While downside risks persist, such as another outbreak, we expect New Zealand's fiscal indicators to recover during the next few years,” it said.

“New Zealand's net general government debt is much higher than in the past but remains lower than most of its peers.”

S&P is forecasting New Zealand’s real GDP per capita will grow at a rate of about 2.2 per cent per year between July 2022 and June 2024.

It also forecast net general government debt would rise to about 38 per cent of GDP by the end of that period.

Finance Minister Grant Robertson noted S&P’s praise, crediting the Government’s health response and “fast action”.

“The economy has bounced back because we did not waste any time as we saw the pandemic take hold overseas,” he said.