Fitch Downgrades New Zealand's Rating Outlook to Negative Due to Debt Issues

Fitch Ratings has downgraded New Zealand’s sovereign credit outlook to negative, primarily due to concerns that the time needed to control government debt will exceed expectations.

In a statement, Fitch confirmed it maintains New Zealand’s sovereign rating at AA+ and stated: “The prospects for significant debt reduction have become increasingly unlikely due to delays in fiscal consolidation over the past few years. Over the past six years, the New Zealand economy has faced multiple shocks, leading to a substantial increase in government debt relative to GDP.”

Fitch expects that in the fiscal year ending June 2027, New Zealand’s government debt will rise to 56% of GDP, and it will not return to 2025 levels until the end of 2030. This figure is significantly higher than the 36.1% of GDP forecasted in Fitch’s 2022 upgrade.

Earlier this week, data showed that New Zealand’s economic growth slowed sharply in the fourth quarter of last year, making its economic foundation more vulnerable to shocks from the Middle East conflict.

In the fourth quarter, New Zealand’s GDP grew by 0.2% quarter-on-quarter, while the third quarter’s growth was revised down to 0.9%, below economists’ expectations of 0.5%.

Fitch pointed out that, due to New Zealand’s heavy reliance on energy imports, the Middle East situation poses certain risks. Although trade with the Middle East is relatively small, inflation transmission effects and the overall weakening of the global economy could still have negative impacts.

New Zealand Finance Minister Nicola Willis said Fitch’s downgrade of the outlook “reminds us once again why fiscal discipline is so critical.”

In her statement, she said: “The government remains committed to three main fiscal goals—reducing expenditure as a share of GDP, achieving a basic operating surplus, and reversing the rising debt trend.”

Willis noted that, due to the impact of the Middle East conflict, the previously forecasted economic growth of about 3% in early 2027 needs to be adjusted. “Market turbulence has brought real uncertainties, and that is precisely why we cannot afford to spend recklessly.”