- Standard & Poor's believes that the credit status of the New Zealand government can withstand the potential damage of negative economic shocks.
- New Zealand's credit rating improved on its financial market health score.
- The New Zealand economy has a low level of public debt compared to other comparable countries.
S&P Global Ratings upgraded New Zealand’s foreign currency and local currency sovereign credit ratings by one notch to AA+ and AAA, saying that New Zealand is recovering from the impact of the new crown epidemic faster than most advanced economies.
Standard & Poor’s believes that the credit status of the New Zealand government can withstand the potential damage of negative economic shocks and can control the spread of the new crown epidemic better than most other countries.
“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,” S&P said.
It is interesting to see what changes are happening in such a small-rated country as New Zealand. For a small country like New Zealand, it is important to take the time to evaluate their credit and look for issues that could affect their ability to get financing from international institutions and banks. The recent downgrade by the European Commission was a wake-up call.
The S&P Global Ratings upgraded New Zealand’s credit rating on two different measures. First, it raised its debt to GDP ratio at 95%. This is the highest level that the New Zealand government has achieved. New Zealand’s debt to GDP ratio is a bit more than twice the average of the world’s most developed countries. It is also a bit less than half the average of the world’s most populous countries.
“New Zealand’s debt profiles compare well to those of its similarly rated peers and support its credit rating, even though its debt levels are higher than in the past,” the agency’s commentary said.
New Zealand’s credit rating improved on its financial market health score. The S&P Global Ratings also identified strong safety measures and corporate governance in place to protect shareholder interests. They also pointed out the positive impact of the financial market turmoil experienced in New Zealand over the past year. The New Zealand economy will need to continue to build on its recovery and employment levels should pick up over the coming months and years. Although inflation is expected to remain low, wage growth should pick up in the coming quarters.
The S&P Global Ratings also noted the strengths of the New Zealand financial markets, which include solid consumer and business finances, low borrowing rates, low spreads, and low volatility. All of these points are important to New Zealand’s economic growth. These are all areas that the United States and other developed countries can look to when reviewing their own respective credit ratings.
The New Zealand economy has a low level of public debt compared to other comparable countries. New Zealand’s debt to GDP ratio is about half the average of other developed countries. This is primarily due to high domestic savings and investment levels. The rating agency also noted that the New Zealand government is taking active steps to achieve its long-term debt reduction target of about 40%.
Another positive note for New Zealand’s economic outlook comes from the rating agency’s view that the government has taken steps to improve the efficiency of public sector procurement activities. Improvements were seen in the area of purchasing efficiencies, including improvements to the delivery of procurement. The rating agency also saw improved relationships between public sector departments and the private sectors. Improvements were also seen in the quality of New Zealand’s procurement partners, which help the country’s economy.
The New Zealand financial market has seen significant improvement in recent years. Inflationary pressures have abated and economic growth has picked up from a low base. Real estate market activity has picked up as well, with urban property values increasing more than most other property markets around the world. The rating agencies also noted that the New Zealand housing market has continued to build on the strength of residential construction and building approvals. Loan and mortgage activity has remained favorable. However, more regulatory activity may be necessary to support the continuing improvement of the New Zealand financial market.
Overall, the rating agency is upbeat on New Zealand’s financial situation, noting the need for continued policy support to ensure long-term sustainability. They also noted that there are some risks to the outlook for New Zealand’s financial system, particularly as the effects of the global credit crisis start to wear off. However, they continued to express optimism about the future of the New Zealand financial market, noting that current credit constraints have had relatively little impact on the functioning of the market.
They also said that their research indicated that household spending has picked up in recent years, which should support the economy and help offset any of the impacts that the global credit crunch may have on consumer spending. Meanwhile, the New Zealand government has introduced some fiscal stimulus measures recently to try to counter any of the damage the credit crisis might have on the New Zealand economy.