Fitch says the country overall has a high level of debt, whether it be households, foreign investors, or the current account deficit. Photo: 123RF
Global credit rating agency Fitch has reaffirmed the country's AA+ rating, but warns that high household debt and a large current account deficit are risks.
The rating, with a stable outlook, is the agency's second highest, which it said reflected New Zealand's strong governance structures and commitment to fiscal discipline.
"The 'AA+' ratings reflect our view that the government's commitment to return to surplus will put gross government debt / GDP on a downward path in the medium term, despite more near-term fiscal expansion.
"Macro-financial risks arise from high household debt and a recent widening of the current account deficit, in the context of already-high net external debt, but the risks are manageable given sound macro management."
It said the economic outlook was challenging with growth falling to 0.8 percent in the coming year because of a worsening trade picture, higher debt servicing costs and weak consumer sentiment as house prices have fallen and the labour market showed signs of easing.
Fitch said the Reserve Bank's rate rises would be fully felt over the next year, but a rebound in tourism and migration would soften the downturn, before growth picked up above 2 percent in 2025.
It noted the government aim to reduce debt levels and return to budget surplus, but said the country overall had a high level of debt, whether it be households, foreign investors, or the current account deficit, which showed the country was living beyond its means.
It said economic growth will be challenging and subdued in the near term and there were several key risks to the rating which could lead to a downgrade.
These included: A failure to get government debt falling over the medium term, a failure to reduce current account deficits leading to higher foreign debt, and a hit to the economy and the banking system if the housing market were to slump, causing households to default on loans, or a sharp rise in unemployment.
Earlier, this month Moodys Investor Services reaffirmed New Zealand's top shelf AAA rating.