Housing correction risk to NZ's strong economy - Moody's

A NZ house in Auckland
Individual debt and an inflated housing market are a risk, according to Moody's (Getty)

The Government's economic strategy has received a shot in the arm after the reaffirmation of the country's AAA credit rating.

It's the highest possible rating handed down by Moody's Investors' Service, and only goes to economies that display a strong a stable outlook.

ANZ chief economist Cameron Bagrie says it shows we're well ahead of the competition.

"We've got an operating surplus, so there's more money coming in than what's going out the door. If you look at New Zealand Government debt levels, it's absolutely world class.

"Government debt is 25, 26 percent of GDP - that is at the very good end of the spectrum, compared to our international counterparts."

Moody's does point out a few weaknesses, including our high levels of individual debt, which are pushing our net external debt to around 60 percent of GDP.

"New Zealand's still got a bit of a noose around our neck," says Mr Bagrie.

"While we've got very strong Government accounts, we've got a pretty weak balance sheet as a nation because we're still a nation of borrow-and-spenders. We like to borrow the money and shove it on a house."

Though praising the Government's ability to respond to shocks like the Christchurch and Kaikoura quakes, Moody's says New Zealand's economy is vulnerable to a correction in the housing market - leaving Kiwi homeowners owing more than their houses are worth.

"The central bank's tightening in lending restrictions is working to cool the housing market, while further pre-emptive tightening measures are likely to be introduced to diminish the probability and reduce the negative consequences of a potential downturn in housing," the report states.

Minister of Finance Steven Joyce says the AAA rating is a "tribute to the hard work of all Kiwis and a position we can all take real confidence from".

"The Government's focus on preserving strong public finances provides New Zealand with the room to buffer the economy from any future economic shocks or natural disasters."

Labour says the AAA rating shows the Government has more room to expand social spending.

"We have record levels of household debt, around 166 percent of debt-to-income ratio, that's the highest New Zealand's ever seen," finance spokesperson Grant Robertson told RNZ.

"That's reflective of a housing market that is out of control."

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