New Zealand rating affirmed at 'AA', outlook stable - Fitch

Fitch Ratings has affirmed New Zealand's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'AA' and its Long-Term Local-Currency IDR at 'AA+' and has maintained the Outlook as Stable. Fitch has also affirmed the ratings on New Zealand's senior unsecured foreign-currency bonds at 'AA' and its senior unsecured local-currency bonds at 'AA+'. The Country Ceiling is affirmed at 'AAA' and the Short-Term Foreign- and Local-Currency IDR is affirmed at 'F1+'.

Fitch noted that stronger-than-expected migration inflows, construction activity in Auckland and a surge in services exports have improved New Zealand's economic outlook, helping offset weak global demand and a fall in dairy production.

Fitch raised the nation's GDP forecast to 2.7 percent for 2016 and 2017, from 2.4 percent and 2.6 percent, respectively. Fitch also expects terms of trade to stabilise and public capital expenditure to rise, with GDP growth slowing to 2.3 percent in 2018 as net migration inflows moderate. Fitch expects the current-account deficit to remain near 2015 levels of 3.0 percent of GDP for the subsequent two years

Fitch said New Zealand's high household debt relative to income and rapid house-price appreciation since the end of 2010 are key vulnerabilities in the country's credit profile. If a house-price correction occurs it could have wider economic implications (through consumption and construction activity), adds Fitch.