(4 October 2011 – New Zealand) Credit rating agencies Standard & Poor’s (S&P) and Fitch downgraded New Zealand’s rating from AA plus to AA last Friday.S&P has had New Zealand on negative outlook since late last year.
In a statement, S&P said it had downgraded the rating because of NZ’s external debt, which it predicts would get worse due to government costs after the Canterbury earthquake.
Fitch Ratings cut the country’s rating by one notch because of concern about growing external debt in a volatile global economy.
It lowered the rating to AA from AA-plus and said it was unlikely NZ would be able to sustainably narrow its current account deficit over the next few years.
The new rating reflected S&P’s opinion of the country’s government spending and monetary policy flexibility, economic resilience and sound banking sector.
But those strengths were ‘moderated’ by New Zealand’s ‘very high external imbalances’ with high household and farm sector debt, dependence on commodity prices and the pressures on government spending from an ageing population.
Big banks’ credit profiles in New Zealand were expected to remain sound and for New Zealand to remain a core market for the big Australia banks.
The strength of the government’s finances was also an important factor lessening the risks from high overall external debts.