Economy to grow close to 3% in 2015 as building offsets dairy decline: Moody's

New Zealand's economy is expected to grow at an annual pace close to 3% this year as increased building activity in its two biggest cities, Auckland and Christchurch, offsets the sharp decline in dairy prices last year, according to global rating agency Moody's Investors Service.

The country's economy is "growing strongly" and growth is likely to remain robust through next year, which is supported by the government's expectation to return to an operating surplus in the 2016 financial year, Moody's said in a report. That growth supports New Zealand's Aaa sovereign rating, though Moody's said the annual update wasn't a rating action.

"New Zealand's economy is growing strongly, despite a steep fall in dairy prices during 2014," it said. "Construction, partly in relation to the rebuilding of Christchurch after the 2011 earthquakes, and also in the Auckland housing market, has been an important contributor to growth."

In December, Moody's said the government's delayed return to fiscal surplus didn't have any implications for the credit rating, as debt ratios were under control and surpluses were projected in later years.

Today's report said New Zealand's ratio of government debt peaked below the median for similarly rated sovereigns and is expected to decline in coming years.

"New Zealand's economy has demonstrated a track record of faster and more stable growth, which counterbalances its economic weaknesses, namely the small size, high concentration and relatively low income levels in comparison to other Aaa-rated sovereigns," Moody's said.

The rating agency again pointed out the nation's current account deficit as the "most important vulnerability," which leaves New Zealand highly dependent on global capital markets for funding.

Housing spending is expected to come under pressure in the near term as the strong currency and external position weaken, making imported goods more expensive for consumers.

Consumer spending has been the primary driver of growth since 2010, slightly exceeding property and business investment, Moody's said.

The rating agency said New Zealand's banking sector was one of the most resilient in the world, and lenders haven't taken on riskier business even as they compete more aggressively for residential mortgage customers.

(BusinessDesk)