Business

Ratings agency gives NZ economy a tick

07:31 am on 7 August 2008

Credit ratings company Standard & Poors says the New Zealand economy remains flexible and resilient, and the Government's books are in good shape.

The rating has been confirmed at Double A Plus and A-1 Plus.

But the high current account deficit means an upgrade to a Triple A rating would be many years away.

Standard & Poors says the economy is in a strong position, but it re-iterated its concerns about New Zealand's indebtedness to the rest of the world, and its vulnerability to external shocks.

New Zealand is heavily reliant on foreign capital and the current account deficit stood at $13.8 billion, or 7.8% of Gross Domestic Product, for the year to March.

Standard & Poors says the deficit will remain above 7% for the next few years.

Despite the banking system's reliance on overseas funds, Standard & Poors says the sector is profitable, adequately capitalized, and holds good quality asset by international standards.

The agency says it's unlikely the problems facing the finance sector will affect the banking sector.

But it points out the credit quality of Australian banks, which own New Zealand's major retail banks, will have an effect on the country's funding costs and overall rating.

Looking at the state of the Government's coffers: Standard & Poors is unconcerned about the prospect of modest deficits and a shrinking economy.

It expects fiscal discipline will remain the norm even if the Government changes at the end of the year.