New Zealand’s financing risk is deemed low, even though its public finances have somewhat suffered in the past years. Fiscal support measures in response to the Covid-19 pandemic and then to rising global energy and food prices drove up the annual fiscal deficit to an average of nearly -4% of GDP between 2020-2025, compared with around -1% on average in the 2010s. However, the fiscal deficit is forecast to narrow in the coming years, falling to -3.6% and -2.5% of GDP in 2026 and 2027, respectively. In parallel, New Zealand’s public debt rose in recent years. However, it is estimated at slightly above 50% of GDP in 2025, well below the average for the OECD (around 110% of GDP) and the Asia-Pacific region (around 100%). The country’s main financial concern is the level of household debt, largely composed of mortgages, which stands at around 170% of disposable income, and is affected by still relatively elevated interest rates. Household debt servicing stood at around 9.5% of disposable income in mid-2025, slightly lower than the peak of 10.5% end-2024. 

New Zealand’s external finances have suffered due to subsequent crises in recent years. The current account deficit widened from around -1% of GDP in 2020 to around -9% in 2022 and only partly narrowed to around -5% in 2025. It is likely to slightly improve in the coming few years, albeit gradually, in the context of still soft demand from China, the US trade war, a rebound in tourism and a trade agreement with the EU that came into effect in 2024. Yet, the annual current account deficit is forecast to remain at -4.7% in 2026 and -4.4% in 2027. More generally, New Zealand’s trade structure leaves it vulnerable to external shocks: (i) China is New Zealand’s main trade partner, accounting for more than 25% of its exports and more than 20% of its imports in 2024; (ii) Australia and the US are the second and third largest trade partners, with significant shares, making New Zealand dependent on the business cycles of these economies and (iii) New Zealand’s exports also rely very heavily on food and agricultural products and are therefore exposed to weather hazards.

New Zealand has a very favorable business climate, sharing first place in our business environment rating. The Heritage Foundation’s Index of Economic Freedom survey 2025 ranks the country eleventh in the world for doing business and third in the Asia-Pacific region. New Zealand scores especially high with regards to government integrity, judicial effectiveness, trade freedom, business freedom and property rights. There is still moderate room for improvement regarding government spending and tax burden. The World Bank Institute’s annual Worldwide Governance Indicators surveys indicate very high levels of regulatory quality and control of corruption (rank 4 worldwide), and a very high level of rule of law albeit slightly lower than the previous year, ranking 10th worldwide down from 5th in the previous year’s survey. Meanwhile, our proprietary Environmental Sustainability Index puts New Zealand at rank 2 out of 210 countries, reflecting very good resistances to water stress and climate change, proficiency in renewable electricity output, and some room for improvement in CO2 emissions compared to GDP and energy use compared to GDP.

New Zealand’s political environment does not present many risks, thanks to established and transparent processes and consensus-building practices across parties. Since 2023, the government has been led by the National Party, under Christopher Luxon, and has received historically low approval ratings. The government has disappointed in its promises to improve economic growth, and the National Party has also struggled with implementing some of their reforms due to conflict with coalition partners, such as NZ First’s resistance to allowing foreigners to buy property in the country as part of the Golden Visa reforms. For these reasons, Labour under Chris Hipkins is likely to return to power this year, with the general election scheduled on 7 November 2026.