17 Jul 2009

Fitch tells NZ to start saving more

8:56 am on 17 July 2009

The international credit ratings agency Fitch says households in New Zealand need to save more to rein in the current account deficit.

Fitch says it may downgrade New Zealand's AA plus rating because of the risk to growth brought on by a large current account gap and rising foreign debt.

Fitch says New Zealand will need to cut the deficit between what it spends and what it earns from overseas in half or risk a downgrade.

That would equate to a current account deficit equal to 4% of the economy's annual output.

If the deficit can't be tackled, Fitch says Government spending may have to be slashed to put New Zealand's finances on a surer footing and avoid a downgrade.

Fitch's Asia Pacific Sovereign Ratings head James McCormack says there is a 50% chance of a downgrade to New Zealand's rating in the next two years.

The New Zealand dollar fell after the announcement.

At 8.20am on Friday, it was trading at 64.87 US cents, 80.42 Australian cents, 39.43 pence, 60.80 yen and 0.4582 euro. The Trade Weighted Index was at 60.85.