4 May 2020

S&P reaffirms New Zealand's AA rating

5:39 pm on 4 May 2020

The last of the world's major credit agencies has reaffirmed New Zealand's high level rating despite saying the economy is probably already in recession and the government's financial position is weakening because of the Covid-19 pandemic.

The Beehive in Wellington during the Covid-19 alert level four lockdown.

Photo: RNZ / Samuel Rillstone

S&P Global Ratings has reaffirmed the country's rating at AA with a positive outlook.

"The Covid-19 outbreak and subsequent government lockdown has delivered a severe economic and fiscal shock to New Zealand. We believe the economy is in recession, and the government's fiscal position is weakening substantially more than it was forecast to do following the December 2019 midyear budget," it said in a commentary.

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It said it expected the government to have a large budget deficit this year and next year, but as the pandemic subsided the situation would improve, although the government debt level was expected to remain high for some years to come.

It says the economy had strong fundamentals and was in a strong fiscal position before the pandemic hit.

S&P forecast the economy to contract by 2.4 percent this year, before recovering by 1.7 percent next year, and by more than 4 percent in 2022.

The government's net debt level, which before the virus was just under 20 percent of the value of the economy was forecast to rise to more than 30 percent.

"New Zealand's stable institutional and governance settings are key credit factors underpinning the sovereign rating. Proactive policymaking supports sustainable public finances and economic growth," it said

S&P is the last of the big three agencies to reaffirm their top level ratings for the economy, with Moodys and Fitch making similar assessments of the economy and its outlook last month.

The top level ratings support lending to the government at favourable interest rates from overseas investors.