January 31, 2019 / 2:15 AM / 3 months ago

S&P upgrades New Zealand's outlook to positive

WELLINGTON (Reuters) - Standard & Poor’s upgraded New Zealand’s credit outlook to “positive” on Thursday, saying expected budget surpluses in coming years would allow the country to reduce its debt and provide resilience to future risks.

FILE PHOTO: A sailing boat can be seen in front of the central business district (CBD) of Wellington in New Zealand, July 2, 2017. Picture taken July 2, 2017. REUTERS/David Gray

S&P reaffirmed its sovereign credit rating at AA+, the second highest, and revised its outlook from stable.

“The positive outlook on the long-term ratings on New Zealand reflects our view that the general government budget could achieve a surplus in the early 2020s,” S&P said in a statement.

“This would reduce net general government debt and provide additional resilience to macroeconomic or financial sector risks that could arise due to high levels of external and domestic leverage,” it said.

But S&P said it could revise the outlook to stable again within the next two years if the government budget does not achieve surplus in the early 2020s.

The New Zealand dollar jumped to a two-month high of $0.6924 immediately after the announcement, but settled later at $0.6898.

The uptick in S&P’s outlook is good news for Prime Minister Jacinda Ardern, whose Labour Party-led coalition has faced criticism for its handling of the economy.

Since coming to power in 2017, Ardern has hiked minimum wages, restricted foreign homebuilding, curbed immigration and said she would introduce a “wellbeing” budget this year.

Opposition leaders and critics have slammed these policies. Business confidence in the government sunk to nine-year lows in October. It’s improved marginally since, but is still remains downbeat.

Economic risks remain as growth slumped to its slowest pace in nearly five years in the third quarter, and concerns loom over the impact of U.S.-China trade tension and Brexit.

S&P said large external imbalances remain a key risk, reflecting New Zealand’s reliance on foreign funding and a history of current account deficits.

It forecast New Zealand’s fiscal outcomes would improve and narrow its deficit, after temporarily widening in fiscal 2019, resulting in the change in net general government debt of just 0.2 percent of GDP in 2022.

Reporting by Praveen Menon; Editing by Kim Coghill

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