NZ's outlook turns positive

STACEY KIRK
Last updated 09:22 09/07/2014

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Credit ratings agency Fitch revised New Zealand's rating outlook from stable to positive overnight.

The positive outlook indicates the likelihood of New Zealand's credit rating strengthening over the next year or two, although it is not a guarantee a change will occur.

Fitch said the revision reflected a strengthening the resilience of New Zealand's sovereign credit profile due to fiscal consolidation.

Vulnerabilities remained however, mainly due to high net external debt and strong commodity dependence.

"New Zealand remains heavily exposed to developments elsewhere, notably in China and Australia," it said.

"The fiscal consolidation drive continues to be strong and Fitch believes it is supported across the political spectrum."

It also took into account New Zealand's first fiscal surplus since 2008, projected in this year's Budget.

The long-term foreign and local currency issuer default ratings were affirmed at AA and AA+ respectively.

Finance Minister Bill English said the revision was a "vote of confidence" in the New Zealand economy and the Government's programme.

"Furthermore, it confirms that the Government has a credible plan to increase its fiscal surplus in the years ahead and to reduce net core Crown debt to 20 per cent of GDP by 2020," he said.

"And Fitch comments that New Zealand's economic policy framework, business environment and standards of governance rank among the world's strongest from a credit perspective, warranting 'high grade' sovereign ratings."

The revision comes as Treasury yesterday reported the Budget deficit was tracking $332 million worse than forecast for the 11 months to the end of May.

The Government has been promising to deliver a Budget surplus, and the May Budget forecast a surplus for the 2014-15 year of $372 million, well ahead of the paper-thin $86m tipped in December.

Prime Minister John Key said he was confident the Government would get back into surplus, doing whatever was necessary to get the Government's books back in the black.

He said it would require careful economic management and he would be surprised if the full $1.5 billion set aside for new initiatives or tax cuts would be spent.

Treasury said the Budget deficit excluding gains and losses was $1.1 billion against $770m forecast in the May 15 Budget update, due to softer than expected GST and corporate tax returns.

Officials said it was too early to know the likely impact of these results "on the current and future financial years as both downside and upside risks exist".

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Labour finance spokesman David Parker said the higher deficit suggested the economic recovery may have already passed most New Zealanders by.

"Fewer businesses expect the economy to improve in the next six months, yet 93 per cent expect interest rates to keep rising and the consensus opinion is that inflation will hit 2.5 per cent by the end of 2014," he said.

Alongside Fitch's AA rating with a positive outlook, New Zealand is rated AAA with a stable outlook by Moody's and AA with a stable outlook by Standard and Poor's.

- BusinessDay.co.nz

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