Budget 2026: Moody’s cheers quick return to surplus but notes significant risk to growth outlook
Friday, 29 May 2026
Ratings agency Moody’s has given its scorecard on New Zealand’s Budget 2026: A bouquet for bringing its return to surplus forward, but a warning that there are significant risks to the growth outlooks it contains.
The general sentiment jives with what the country’s own economists said yesterday after the Government put forward a return to surplus a year earlier than expected, to 2029, in Budget 2026.
While Finance Minister Nicola Willis said the Treasury was confident the country would bounce back and return to “not only healthy levels of growth but accelerating growth over the forecast period”, economists told The Post the forecast was “optimistic”, and one, ANZ senior economist Miles Workman, calling Treasury’s overall outlook “rose-tinted”.
Moody’s Ratings vice president - senior credit officer Martin Petch, who is based in Singapore, said the Budget Economic and Fiscal Update for 2026 forecasting an earlier than expected return to surplus was “a positive development built on operating spending restraint and a recovery in economic growth during 2027.
“This is consistent with our view of the strength of New Zealand's institutions’ commitment to effective fiscal policy frameworks.”
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He went on to say the Budget projected annual growth of 2.3% to June 2027, which was in line with the agency’s own forecast.
However, he added, “there are significant risks to this outlook.
“This is particularly in terms of the strength of the recovery of New Zealand’s economy in a highly uncertain global economic and geo-political context. Ongoing inflation pressures may necessitate further monetary policy tightening which could in turn constrain growth and add further pressure to New Zealand’s weakened debt affordability.”
In late April, Moody’s Ratings revised New Zealand’s “Aaa” outlook from stable to negative, the second agency to downgrade its outlook after Fitch took the same step in March.
The agency said New Zealand's credit profile reflected its very strong institutions and policy effectiveness and a fiscal position that was currently consistent with peers.
However, on the downside was the country’s exposure to potential financial market volatility due to reliance on external financing, elevated household debt and a commodity-reliant economy exposed to volatile export earnings and weak productivity.
It said the negative outlook imposed reflected “our assessment that risks to New Zealand’s fiscal trajectory have increased.
“Global economic and geopolitical uncertainty present downside risks to growth.
“Inflation pressures also persist, including fuel price increases, stubborn non- tradeable housing costs and utility prices, and higher electricity costs.
“The potential for a combination of tighter monetary policy, slower short-term growth and increased debt servicing costs may further delay fiscal consolidation, after recent shocks have increased the debt burden and weakened debt affordability.”
It said downward pressure on the rating would happen if “the recent weakening of the fiscal metrics as a result of weaker growth were not reversed, in line with New Zealand's past record and our expectations, through timely fiscal consolidation.”
Fiscal consolidation means implementing government policies to reduce budget deficits and lower public debt.
“If not addressed, a persistently higher debt burden would likely imply diminished fiscal policy effectiveness,” Moody’s said. “In this scenario, New Zealand’s credit profile would start becoming weaker than that of other Aaa-rated small, open economies.”
New Zealand Finance Minister Nicola Willis has said she agrees reducing deficits and lower public debt is critical to rebuilding the country's economic buffers and steering the Government's books back to a surplus.
Her Budget 2026, according to those assessing it, centred on modest consolidation and strict spending discipline, although others say it lacked any prescriptions for growth.