A woman speaking at a press conference, with microphones in front of her. In the background, there are New Zealand banknotes and an orange vertical banner reading "THE BULLETIN.
New Zealand’s economic recovery has been ‘delayed, but not derailed’ by the fuel crisis, finance minister Nicola Willis says.

The Bulletinabout 10 hours ago

New Zealand ‘clearly on notice’ after credit agency downgrade

Contributing writer
A woman speaking at a press conference, with microphones in front of her. In the background, there are New Zealand banknotes and an orange vertical banner reading "THE BULLETIN.
New Zealand’s economic recovery has been ‘delayed, but not derailed’ by the fuel crisis, finance minister Nicola Willis says.
newsletter

With the long-promised return to surplus potentially pushed out a fourth year, the international ratings agencies’ patience is wearing thin, writes Catherine McGregor in today’s excerpt from The Bulletin.

To receive The Bulletin in full each weekday, sign up here.

On notice

New Zealand is “clearly on notice”, Infometrics’ Brad Olsen said on Thursday, hours after ratings agency Moody’s shifted the country’s credit outlook from stable to negative – the second major agency to do so, after Fitch in March. As the NZ Herald reports, Moody’s affirmed the country’s AAA rating but said rising debt, persistent inflation and an Iran-war shock made a reduction in fiscal deficits harder to envisage. Government debt is tipped to hit 53.9% of GDP by June. Olsen said a return to surplus – already pushed out repeatedly – could be delayed a fourth year, and warned that “if there’s not a larger sort of focus on fiscal consolidation [the agencies] might well sort of threaten to pull that trigger even harder”.

Hours after the Moody’s announcement, finance minister Nicola Willis held a media briefing to unveil three oil-shock scenarios modelled by Treasury, which made the “very unusual” decision to reopen its pre-budget forecasts in the wake of the fuel crisis. As BusinessDesk’s Thomas Manch reports (paywalled), with Brent crude easing to US$102, Willis said the mildest scenario – inflation reaching 3.9% and growth slowing to 2% – now looked most likely. The worst case, which would require oil prices rocketing to US$180, would spike inflation to 7.4% and push unemployment to 6.6%. NZ’s recovery was “delayed, but not derailed”, she said.

The productivity problem

Also released on Thursday, new Stats NZ data showed multi-factor productivity fell 0.9% in the year to March 2025. As the NZ Herald’s Liam Dann reports (paywalled), labour productivity technically rose, but only because firms cut workers faster than production fell. Capital productivity declined too – meaning more money went into the economy while total output still dropped 1.5%.

The long-run picture is no more comforting. The data confirms a downward trend stretching back well before Covid: in the year to March 2023, multi-factor productivity fell 2.2%. Since 1996, NZ’s goods-producing industries have improved output per hour by just 16.6%, against 72% in the primary sector. Economists point to some consistent culprits: the country’s preference for housing investment over productive capital, weak R&D spending, and poor regulatory settings.

$4 billion out the door

With the fuel crisis bearing down on consumers, Spinoff guest writer Dan Brunskill asks: who is actually winning from the current price of oil? The answer, for New Zealanders, is nobody. ASB estimates the average household is paying an extra $55 a week – a total of perhaps $4 billion being siphoned “straight out of New Zealand and into the bank accounts of international oil companies”. Debit and credit card data for March shows fuel spending up 17%, covered by reductions elsewhere, including hospitality down 2%, and apparel down 4%. And that was only the first wave, with higher oil prices yet to flow through to food and freight.

There are no winners in New Zealand – but there are winners somewhere. The windfall flows to American and Canadian oil companies, to Russia, and to oil-rich Norway, whose sovereign wealth fund stands to grow even further. Shares in the world’s 120 largest oil-related companies have risen 24% since the start of the year.

How the economy affects social cohesion

Amid all this bad economic news, the Helen Clark Foundation yesterday released its latest Social Cohesion in New Zealand report. Its central finding is unambiguous: financial stress is the single dominant driver of low social cohesion in this country. Compared to someone prosperous, a person who is “just getting along” scores 6.5 points lower on the cohesion index; someone struggling to pay bills scores 9 points lower; someone describing themselves as poor scores 14.4 points lower. Religion, age and gender all feature in the data, but none come close to financial circumstances as a predictor.

The report also finds homeowners show 7.4 percentage points higher civic participation and 14 points higher “neighbourhood belonging” than renters – with half of all adults now renting. Its conclusion carries a particular charge on a day when the government signalled further fiscal belt tightening may be on the cards: “Financial stress is the dominant driver of low cohesion, and no amount of community programming can compensate for economic policy that leaves people behind.”