Credit ratings agency Fitch has lowered New Zealand's outlook to "negative" from "stable", citing the Pacific nation's increasing difficulty in reducing debt due to a delay in fiscal consolidation over the last few years.
New Zealand's economic recovery has hobbled in the past few quarters, as tepid consumption and heightened uncertainty about US trade policy and the global economic outlook weighed. Though growth in the economy has started to show early signs of an improvement, there remains plenty of spare capacity.
"Significant fiscal consolidation measures are likely to occur only after the 2026 election, adding uncertainty to the fiscal outlook," Fitch said, maintaining New Zealand's ratings at AA+. General elections are scheduled for November 7.
Fitch said the ongoing Iran war poses some risks to NZ's economy, given its substantial dependence on energy imports.
On Thursday, official figures showed New Zealand's GDP grew in the fourth quarter but was weaker than expected.
While New Zealand's direct links to the Middle East are small, inflationary effects and broader global weakening could have a negative impact, the rating agency said.
Fitch added New Zealand's economy was vulnerable due to "an elevated current account deficit (CAD), and high household debt."
Finance Minister Nicola Willis said on Monday the country's treasury department has forecast that inflation will rise to 3.7 per cent if the Iran war lasts through the year.