S&P joins Fitch in downgrading NZ

Standard & Poor's downgrades New Zealand's sovereign credit rating citing weakening of fiscal position, calls for greater savings

30th Sep 11, 2:01pm by Gareth Vaughan

Hot on the heels of rival Fitch Ratings' downgrade of New Zealand's sovereign credit rating, Standard & Poor's has followed suit, saying the country’s fiscal position has been weakened by Christchurch earthquake-related spending pressures and fiscal stimulus to support growth.

S&P said it had cut its long-term foreign currency ratings on New Zealand to 'AA' from 'AA+' and its long-term local currency rating on New Zealand to ‘AA+’ from ‘AAA’. The short-term ratings are affirmed at ‘A-1+' and the outlook on the foreign and local currency ratings stable.

"The lowering of the foreign and local currency long-term ratings follows our assessment of the likelihood that New Zealand’s external position will deteriorate further at a time when the country’s fiscal settings have been weakened by earthquake-related spending pressures and fiscal stimulus to support growth," S&P Sovereign credit analyst Kyran Curry said.

He said the ratings reflect S&P's opinion on New Zealand's fiscal and monetary policy flexibility, economic resilience, public policy stability, and its sound financial sector.

"These strengths are moderated by New Zealand’s very high external imbalances, which are accompanied by high household and agriculture sector debt, dependence on commodity income, and emerging fiscal pressures associated with its aging population," added Curry.

“The stable outlook balances the stabilization we expect between the government's debt profile over the medium term and risks associated with the country's high external debt. We expect the New Zealand major banks’ credit profile to remain sound and for New Zealand to remain a core market for the banks’ Australian parents. We also consider the strength in government finances to be an important mitigating factor to the risks associated with the external position. ”

However, he said downward pressure on New Zealand’s ratings could re-emerge if the external position continues to deteriorate.

“Rising public savings will be an important component for keeping the country’s current account deficit in check. On the other hand, upward pressure on the ratings could eventually emerge if sustained current account surpluses, led by a stronger export performance and higher public savings, markedly reduced external debt.”

S&P's move comes after Fitch Ratings cut New Zealand's sovereign credit rating to AA from AA+ earlier today, saying it saw New Zealand's net foreign debt as higher than others with AA credit ratings and that New Zealand's structural imbalances were continuing to widen. See more here.

There is more information here on how to compare credit ratings from the main agencies.

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15 Comments

by Nicholas Arrand | 30th Sep 11, 2:07pm 1317344831

".. upward pressure on the ratings could eventually emerge if sustained current account surpluses ... markedly reduced external debt.” Remind me...when was that last C/A annual surplus? 1973 comes to mind, but I may have missed some stats.

by Chairman Moa | 30th Sep 11, 2:20pm 1317345658

NA you can escape it all with a $200 one way ticket! how's your holiday in sunny QLD?

by Nicholas Arrand | 30th Sep 11, 2:29pm 1317346193

It was a fact-finding mission, Chairman M ! Well, that's what I told No. 3 to get her to come along. But it was great, but quiet. I've been trecking to the Gold and Sunshine Coasts since 1976, and I can't say I've seen so few people, tourists. But I did like a Paradise Waters pied-a terre that was listed 2007 for $2.75m, then $2.5m, then $2.25m, then $2m and now, "make an offer". Who knows? I might have to revisit my 'never buy again' thoughts and enjoy that 30*c plus weather we had!

by David George | 30th Sep 11, 2:21pm 1317345717

No, you haven't missed anything Nick, nearly forty years in the red on the current account and no credible plan or vision to get it in the black. Don't even know why S&P put that in there.

by Colin Riden | 2nd Oct 11, 4:00pm 1317524442

On the other hand, upward pressure on the ratings could eventually emerge if sustained current account surpluses, led by a stronger export performance and higher public savings, markedly reduced external debt.

That is the critical sentence, and S&P put it in there for a good reason - to send a very clear message to John Key, Bill English, the NZ media, and the public. Roughly translated:

Turkeys, don't kid yourselves that there is any possibility of a credit rating upgrade for at least a generation. Forget trade or government surpluses - the only thing that really matters is the current account being sustained in surplus.

And with that discomforting message they are absolutely correct.

by Andrewj | 2nd Oct 11, 4:33pm 1317526402

I hear John and Bill are hatching a cunning plan as we speak. So cunning you could stick a tail on it and call it a weasel.

by Andrewj | 2nd Oct 11, 4:43pm 1317527022

I see there is more support for a meltdown, im all for it. Just got to decide whether we want our bankers and politicians fried,roasted or boiled.

Charles Crawford wrote a warning in the telegraph

>>>>>>>>

President Wulff helpfully reminds us of the moral dimension of money, something usually overlooked.

What is money, after all, but an expression of moral value, above all an expression of confidence about trust and integrity? Not merely now, but based on hard-won reputation for reliability in preceding generations, and echoing down the decades still to come

Who wants to be paid in North Korean or Zimbabwean or Cuban currency? No-one.

Why? Because that currency is an expression of cruelty, inefficiency, waste and stupidity. It is literally worthless for most practical purposes.

"Not an ocean of tears nor all the guns in the world can transform those pieces of paper in your wallet into the bread you will need to survive tomorrow.

Those pieces of paper, which should have been gold, are a token of honor -- your claim upon the energy of the men who produce.

Your wallet is your statement of hope that somewhere in the world around you there are men who will not default on that moral principle which is the root of money."

>>>>>>>

More than one in three international investors expect a global economic meltdown within the next 12 months, according to a new Bloomberg poll. Far more - almost 70pc - say the world economy is deteriorating, up from just 18pc four months ago.

http://www.telegraph.co.uk/finance/comment/liamhalligan/8801314/Eurozon…

by Kunst | 2nd Oct 11, 6:12pm 1317532372

Best contribution today - Andrew - absolutely agree.

by Wolly | 30th Sep 11, 3:08pm 1317348504

A need for greater public saving...harrrrrhahahaaa what a bloody joke...and Bollard doing his best to keep returns to savers at rockbottom while inflation eats up the value of the Kiwi$....

On top of that English cooking up a shady way out of giving savers real guarantees on bank deposits....

"We'll keep a bust bank going and let you have a five bob a week of your own savings..."

The events taking place were all easily predictable by anyone with half a brain.

by Ralph | 30th Sep 11, 3:14pm 1317348852

You can't win with these goons.

Half the economists are saying any part of the world that can apply fiscal stimulus must do so (Roubini et al.) to stop a self fulfilling depressionary cycle brought about by slumping expenditure.

The rating agencies are driving up the cost of money by slashing ratings everywhere and claiming we should all save more and spend less.

What chance they'll slash again if the domestic economy slumps whilst we're doing all this saving they want?

by Gareth Vaughan | 30th Sep 11, 3:30pm 1317349800

S&P has also downgraded a bunch of local government entities and the EQC:

Seven New Zealand Local Government And Related Entity Ratings Lowered On Sovereign Ratings Downgrade; Outlooks Stable

Melbourne, Sept. 30, 2011—Standard & Poor’s Ratings Services said today that it had lowered the following ratings on seven New Zealand local and regional governments (LRGs) and government-related entities (GREs):

· New Plymouth District Council: the foreign currency and local currency credit ratings have been lowered to ‘AA’ from ‘AA+’. The outlook on both ratings is stable.

· WellingtonCityCouncil: the local currency rating has been lowered to ‘AA’ from ‘AA+’. The outlook on the rating is stable.

· Auckland District Health Board: the long-term foreign currency rating has been lowered to ‘AA’ from ‘AA+’ and the long-term local currency rating lowered to ‘AA+’ from ‘AAA’. The outlook on the foreign currency rating is stable.

· Counties Manukau District Health Board: the long-term foreign currency rating has been lowered to ‘AA’ from ‘AA+’ and the long-term local currency rating lowered to ‘AA+’ from ‘AAA’. The outlook on the foreign currency rating is stable.

· Housing New Zealand Corp.: the long-term foreign currency rating has been lowered to ‘AA’ from ‘AA+’ and the long-term local currency rating lowered to ‘AA+’ from ‘AAA’. The outlook on the foreign currency rating is stable.

· Housing New Zealand Ltd.: the long-term foreign currency rating has been lowered to ‘AA’ from ‘AA+’ and the long-term local currency rating lowered to ‘AA+’ from ‘AAA’. The outlook on the foreign currency rating is stable.

· Earthquake Commission: the long-term local currency rating lowered to ‘AA+’ from ‘AAA’. The outlook is stable.

The ratings actions follow our lowering of the long-term foreign currency ratings on the New Zealand sovereign to 'AA' from 'AA+' and the long-term local currency ratings to ‘AA+’ from ‘AAA’. The short-term ratings were affirmed at ‘A-1+'. The outlook on the sovereign foreign and local currency ratings is stable. The Transfer & Convertibility (T&C) assessment for New Zealand is unchanged, at 'AAA'.

Sovereign credit analyst for Standard & Poor’s Kyran Curry said, “The GRE rating actions reflect their respective relationships to the New Zealand government. The rating actions on the LRGs reflect our view that there is a high correlation in economic and financial performance between them and the New Zealand sovereign. Furthermore, we believe that the LRGs do not have sufficient operational and financial flexibility to deal with potential stresses better than the sovereign, and their credit characteristics are likely to deteriorate together with those of the sovereign in severe macroeconomic or geopolitical stress scenarios.”

by Berend de Boer | 30th Sep 11, 4:22pm 1317352933

Borrowing our way to prosperity has worked Bill and John! Now sleep walk to the election.

by Rob | 30th Sep 11, 5:43pm 1317357803

I wasn't too worried about the fitch downgrade as they are smaller player that finance compies used to get ratings from. However the S+P downgrade is bad, and S+Ps reasons seem to differ from the governments explaination.

I hope interest rates do rise, as cheap credit is like drugs, once you get a taste for it, you get hooked. Unfortionately the government says save, but the interest rates are so pitiful, you are losing the monies spending power, due to the high inflation.

by james_chch | 30th Sep 11, 6:33pm 1317360831

Agreed on the problem of cheap credit. It's all very well for the government to want people to save, and stop chucking so much money into debt-funded unproductive investments, but if that's what they want then we need high interest rates, not low ones.

by emergence | 30th Sep 11, 11:51pm 1317379883

S & P... weren't these the upsanding chaps rating all those fabulous sub-prime mortgage derivitives as AAA?