Morningstar DBRS said the rating was justified by New Zealand's fundamental strengths of prudent fiscal and monetary policymaking. Photo: RNZ
The credit ratings arm of a major global financial research firm has rated New Zealand AAA, with a stable trend, in its first public ratings for this country.
Morningstar DBRS said the rating was justified by New Zealand's fundamental strengths of prudent fiscal and monetary policymaking.
It said the stable trend reflected its view the economy was rebalancing following tight monetary policy and as the government worked to tidy the books.
The ratings agency expected economic growth to pick up next year on the back of lower interest rates, and reduced global uncertainty.
Morningstar DBRS assistant vice president global sovereign ratings, Julia Specht, said the state of the government's books did not cause concern, but there was room for improvement.
"At this point we're not concerned about deficits today but we need to see some consolidation over the medium-term to put public finances on a more sustainable path," Specht said.
She said while debt has increased, it remained moderate compared to other advanced economies.
"The average public debt ratio to GDP for advanced economies is about 110 percent or so, and New Zealand's is less than half of that," Specht said.
Morningstar DBRS said if global trade uncertainty continued, it could create downside risks, which could affect exports and investment.
"The impact could be indirect on exports due to weaker global demand, reduced demand for New Zealand exports and that could flow through as lower commodity prices," Specht said.
Morningstar DBRS also noted that New Zealand's financial system coped well with the housing market correction over the past few years.
"A lot of that is due to the well-capitalised banks that are also very liquid, and they have strong buffers to absorb losses," Specht said.
Loan-to-value and debt-to-income limits also helped keep risky mortgage lending in check, she said.
It said despite a marginal increase in overdue loans due to weaker economic conditions and a softer job market, overall levels of non-performing loans remained low.
And it said the stabilisation of house prices decreased risks to financial stability.
Sign up for Ngā Pitopito Kōrero, a daily newsletter curated by our editors and delivered straight to your inbox every weekday.
