New Zealand is “clearly on notice” after a second international rating agency downgraded the country’s financial outlook to negative, an economist says. 

Infometrics’ principal economist Brad Olsen warned that Nicola Willis’ Budget next month was not “going to look great” and believed the country’s much-promised return to surplus could be pushed out by another year. 

While affirming New Zealand’s AAA credit rating, rating agency Moody’s shifted its financial outlook for the country to negative because of the risks posed by global economic and ‌geopolitical uncertainty. 

“Inflation pressures also persist, including fuel price increases, stubborn non-tradeable housing costs and utility prices, and higher electricity costs,” the agency said in its report late yesterday. 

In March ratings agency Fitch also downgraded New Zealand’s outlook from stable to negative, citing debt reduction concerns. 

“The outlook revision reflects our view that a substantial debt reduction is becoming more difficult to envisage, as fiscal consolidation has been delayed in the past few years,” Fitch wrote. 

The conflict in the Middle East has sent shockwaves around the world, pushing up the price of fuel and constraining supply. Photo / Getty 

Reacting to Moody’s outlook downgrade, Olsen told Ryan Bridge TODAY that New Zealand was “clearly on notice”. 

“We’ve had higher inflation in recent times, we’ve of course got expectations that interest rates might have to increase, and the Government’s finances are unlikely to look better after the Iran war that we’re currently seeing. And so Moody’s have looked at all of that and said, well, all of those conditions make it quite difficult for the Government to remain on track to pay down debt, to get things back to surplus,” Olsen said. 

“They’ve already seen a couple of years where that sort of debt repayment and surplus return have been pushed out and pushed out and pushed out, and they’re going, surely if you’ve continued to push them out and now got another shock, it can’t look good,” Olsen said. 

“So risks [are] there around just how long we’re taking to return to surplus, but some very difficult conversations for the government. They’ll be looking at these sort of international ratings agencies and certainly not feeling comfortable, but equally there’s not a lot of easy options out of this sort of mix.” 

Olsen was not sure whether Moody’s had made similar assessments of other countries yet. 

“If everyone else gets downgraded around you, then you might be paying a bit more, but so is everyone. That’ll just be part of the global economic cycle. If New Zealand is being singled out a bit more in terms of how long it’s taking us to repay debt and everything else, that’s where you start to get worried that ... our financial positioning, how we’re regarded internationally, is falling back. And I think that’s why it was interesting in this Moody’s release, they said quite clearly, look, institutions in New Zealand are still good, they’re still solid. We’re just worried about how long things are sort of pushing out.“ 

Finance Minister Nicola Willis. Photo / Mark Mitchell 

Olsen was of the view that in next month’s Budget, the Government could push out the country’s return to surplus again. 

“The Budget’s not going to look great given that the Government’s having to pay a whole lot more for fuel and just doesn’t have as much economic activity coming in. But again, that would be now, I think, the fourth year that you might see a push out. So for the ratings agencies, they’ve put us on notice, they’re not just going to keep watching as this happens. I wouldn’t be surprised within the next year if there’s not a larger sort of focus on fiscal consolidation that they might well sort of threaten to pull that trigger even harder.“ 

Treasury, in its half-yearly update last December said it saw New Zealand’s deficit deepening further, from $14 billion in the year to June 2025 to $16.9b in 2025/26, before narrowing to $60 million in 2029/30. 

While that was an improvement from when Treasury last published forecasts at the May 2025 Budget, it still undershot National’s pre-election pledge to return the books to surplus by 2026/27.