Moody's expects more reforms to boost economy under new PM

Government forecasts of average annual GDP growth of 3.5% over 2017 and 2018 are higher than Moody's predictions.

Edwin Mitson
Tue, 13 Dec 2016

Moody's Investors Service says the country's strong public finances have given it significant flexibility to deal with negative shocks and it expects further economic reforms under new Prime Minister Bill English.

The ratings company says it expects "policies and reforms that foster economic growth and maintain sound public finances to remain a key focus under a new leadership," based on its analysis of last week's half-year economic and fiscal update.

The half-year fiscal update led to the government earmarking an extra $2.1 billion for capital spending in Budget 2017 because of stronger forecast economic growth delivering a higher tax take. Real gross domestic product is expected to grow 3.6% in the year to the end of June 2017.

Moody's says it expects government spending on social assistance and quake costs to increase but the economy will benefit from a better than expected performance and improvements in the terms of trade. It expects revenue to rise from recovering dairy prices, higher migration, increased tourism and reconstruction.

However, the agency noted the government forecast of average annual GDP growth of 3.5% over 2017 and 2018 is higher than its own prediction and suggests some downside risk to the revenue projections.

Moody's also says "stronger fiscal surpluses in the outer years will be based primarily on expenditure restraint. Although this may be challenging given large spending commitments on health, education, social security and welfare, we expect slippages, if any, to be small," Moody's says.

The agency's rating of New Zealand's bonds (Aaa stable) remains unchanged.

(BusinessDesk)

Edwin Mitson
Tue, 13 Dec 2016

Categories

Analysis

Featured

Moody's expects more reforms to boost economy under new PM