Fitch affirms New Zealand’s AAA+ rating with stable outlook

Fitch Ratings has maintained on Tuesday New Zealand’s Long-Term Foreign-Currency Issuer Default Rating at AAA+ with a stable outlook.

The rating agency cited New Zealand’s robust economy, strong governance, and commitment to fiscal discipline as key factors supporting the rating. However, Fitch also highlighted challenges such as high household debt and a significant current account deficit.

“The ‘AA+’ ratings reflect our view that the government’s commitment to return to surplus will stabilise and then reduce government debt/GDP in the medium term. Macro-financial risks arise from high household debt and a high current account deficit, in the context of already-high net external debt, but the risks are manageable given sound macro management.” Fitch statement read.

Despite delays in returning to fiscal surplus, the New Zealand government’s plans to reduce debt in the medium term contributed to the affirmation. Fitch expects economic growth to slow in 2024 before recovering in the following years.

“We forecast real GDP growth to slow to 0.1 per cent in 2024, from 0.8 per cent in 2023, as the lagged effects of tighter monetary policy fully translate into higher debt servicing costs, a softening labour market and weak consumer sentiment amid sluggish house prices.

“We expect monetary easing to support growth rates of 2.0 per cent in 2025 and 2.5 per cent in 2026, still weaker than in recent history. Weaker terms of trade and softening external demand continue to drag on the economy, mitigated by a bounce-back in tourist and net migration flows.”

While acknowledging these challenges, Fitch believes that New Zealand’s strong macroeconomic management will help mitigate risks.

Attribution: Fitch Ratings statement