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New Zealand’s economy is one of the most well-placed economies in the world, partly owing the credit to its hard and early response to the COVID-19 pandemic. NZ witnessed an increase in the economic activity in the second half of 2020.
NZ’s economic activity had fallen 11% in Q2 of 2020, but bounced back 14% in Q3. However, GDP fell by 1% in the last 3 months of 2020. The NZ economy has broadly stayed tolerant to the impact of COVID-19. One of the factors that has backed its strong footing is its positive rating outlook amid the mellow-down-COVID-19 impact.
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Higher sovereign credit ratings make it possible for countries to obtain more funds at a lower interest rate and increasing economic optimism.
Moody’s maintains a stable outlook for the NZ economy
On 21 April, Ratings Agency Moody’s reaffirmed a stable outlook on NZ’s Aaa credit rating. The agency stated that the economy would remain resilient to external headwinds. Despite the economic shock triggered by the coronavirus pandemic, New Zealand's credit profile was backed by its stable economy, sound policy structures, and robust fiscal reserves.
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Moody’s analyst Michael Higgins stated that New Zealand's economy was likely to stay tolerant of external shocks because of its trade openness, diversified and competitive agricultural export base, versatile labor and commodity markets, high wealth levels, and favourable demographics fuelled by solid net immigration.
As per Higgins, NZ economy has the ability to grow between 2.5% and 3% annually in the medium-term, a level higher than many developed Aaa-rated peers. However, the economic growth is projected to average 4% over 2021-2022.
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Moody’s noted that the country's credit rating was the most at risk from a major housing market downturn or a sharp and extended spell of slower economic growth, which resulted in a strong and persistent rise in the government debt.
S&P Global had upgraded NZ’s credit rating
Ratings firm, S&P Global Ratings, had upgraded NZ’s credit rating in late February 2021, making it the first sovereign to get a rating raise since the COVID-19 outbreak.
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S&P had raised NZ’s foreign currency rating a notch from AA to AA+ level with stable outlook. The agency believed that NZ government’s credit metrics could withstand possible harm from negative jolts to the economy.
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The Agency had noted that New Zealand’s monetary flexibility, wealthy economy, and institutions are favourable to quick and decisive policy actions while offsetting NZ’s external imbalances. However, the firm had warned that the financial system of NZ remained prone to a sharp decline in property prices but indicated it was not on the horizon. Property prices in NZ rather are now amongst the highest in the world.
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Instead, S&P had predicted that economic growth and low interest rates would continue to push the NZ property prices upward over the next six months with the impact of RBNZ’s new loan-value restrictions requiring some time to filter through to prices.
