World Economy

S&P Affirms NZ Stable Outlook

A recovery in dairy prices is revitalizing a moribund rural sector.A recovery in dairy prices is revitalizing a moribund rural sector.

The global rating agency kept the sovereign foreign currency credit rating at ‘AA’, local currency rating at ‘AA+’, and short-term rating at ‘A-1’, with a stable outlook, saying the nation benefitted from strong institutions, an effective government and credible Reserve Bank. The kiwi rose to 72.18 US cents from 71.84 cents immediately before the release.

“New Zealand benefits from a high-income and resilient economy, which we believe draws from decades of structural reforms and wage restraint,” S&P analysts Craig Michaels and Anthony Walker said in a note. “We expect strong net migration to continue to support growth, through strong residential investment and solid consumption growth, while business investment is also likely to remain firm,” reported.

ASB Bank economists predict New Zealand’s economy will grow 3.5% in 2017 as the nation’s construction and tourism booms continue, and also as a recovery in dairy prices is revitalizing a moribund rural sector.

The rating agency predicts that expansion and currency appreciation over the past year will likely lift GDP per capita to $39,000 in the 2017 fiscal year from $34,000 in 2016.

Increased spending on residential property is seen as alleviating rapid house price appreciation in Auckland, which has seeped into other parts of the country, and while a correction in the housing market is still deemed to be an elevated risk, it’s unlikely to heighten in the next two years.

“We believe the recent trend of higher repricing of home loans, in response to margin pressures and rising global yields, is likely to remove some cyclical demand from New Zealand’s housing market, though we expect a number of structural challenges will ensure risks remain elevated,” S&P said.

However, the threat posed by a downturn in the dairy sector had eased, reducing pressure on bank loans to farmers. “Nevertheless, we expect that many dairy farmers will remain reliant on the extraordinary support of their lenders, given the surge in dairy sector debt in recent years,” the analysts said.

S&P affirmed its ‘stable’ outlook on the prospect of the government’s books either getting better or maintaining the status quo in coming years, having “made substantial headway” since the 2008 global recession.

The current account deficit is seen to remain in a range of 3-to-4.5% of GDP over the next few years due to cheaper imports, while external debt is seen to be stable at about 190% of current account receipts.

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