Bangkok--17 Jul--Standard & Poor's Standard & Poor's Ratings Services today said it had affirmed its 'AA+/A-1+' foreign currency and 'AAA/A-1+' local currency sovereign credit ratings on New Zealand. The outlook is stable. "The sovereign ratings on New Zealand are underpinned by the country's strong fiscal position and conservative macroeconomic management, which together support a flexible and resilient economy," said Standard & Poor's credit analyst Kyran Curry of the Sovereign Ratings group. "New Zealand's robust public sector finances and the net creditor position of the government mitigate the risks associated with a range of external and internal imbalances, although they do not eradicate these risks entirely." New Zealand's key vulnerability stems from the country's persistently large current account deficits and subsequent high level of external debt. While New Zealand has historically run current account deficits, the situation of the past few years is notable for the deficits' size and composition. The current account deficit has been running at about 9% of GDP in the past few years and a sudden improvement is unlikely with deficits of about 7.5% over the next few years projected. This compares with an average of around 4.5% of GDP throughout the 1990s. Furthermore, the increase in the current account deficit in the past few years is not a result of capacity-building investment. Rather it has resulted from imports growth to sustain high levels of consumer spending and a dwelling boom. There are also domestic stresses that present a risk to the outlook. These arise from an unbalanced growth pattern, which is reflected in little sign of spare capacity in the labor market, upward pressure on house prices, and inflationary pressures that appear likely to accumulate in the medium term in spite of already very high interest rates. "While there are imbalances in the economy, this does not threaten credit quality," said Mr Curry. "The most likely scenario is a gradual unwinding of these imbalances and growth remaining at around 2.5% over the next few years as a stronger external sector offsets weaker domestic demand. There is some risk of a more traumatic scenario where the country slips into recession due to an external shock or significant change in investor sentiment. This would have a large and immediate negative impact on the government's finances. However, the low level of net debt provides a strong buffer to absorb any such shock without threatening credit quality." "Only a significant and unexpected weakening of government fiscal policy is likely to lead to a downgrade in the next few years," concluded Mr Curry. Ratings are statements of opinion, not statements of fact or recommendations to buy, hold, or sell any securities. Standard & Poor's (Australia) Pty. Ltd. does not hold an Australian financial services license under the Corporations Act 2001. Any rating and the information contained in any research report published by Standard & Poor's is of a general nature. It has been prepared without taking into account any recipient's particular financial needs, circumstances, and objectives. Therefore, a recipient should assess the appropriateness of such information to it before making an investment decision based on this information. Complete ratings information is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; under Credit Ratings in the left navigation bar, select Find a Rating, then Credit Ratings Search. Media Contact: David Wargin, New York (1) 212-438-1579 [email protected] Analyst Contacts: Kyran Curry, Melbourne (61) 3-9631-2082 Brendan Flynn, Melbourne (61) 3-9631-2042