‘Increasingly volatile’: International economists think New Zealand politics is becoming more unstable

BMI says the coalition led by Prime Minister Christopher Luxon is under "severe strain". Photo / Michael Craig

International economics firm BMI has upgraded New Zealand’s political volatility score, warning of the country’s “increasingly volatile” politics and that the Government’s cohesion was under “severe strain”.

BMI measures countries’ political risk using a Political Risk Index, which is designed to indicate whether a country has more or less volatile politics.

In mid-2023, New Zealand’s score on this index was 16. It rose to 18.3 in November of this year. The scores are out of 100, with 100 indicating a high level of political risk. This means that while New Zealand’s political risk has increased, the country is still viewed as stable.

The Ardern Government also had moments of higher political risk, according to this measure.

Prime Minister Christopher Luxon dismissed the report, saying the Government was “very united” and noted that other countries with proportional representation also had instability.

In a note, BMI cited a recent Ipsos poll that showed Government confidence ratings at record lows and rumours of a coup against Prime Minister Christopher Luxon.

“New Zealand’s political environment has become increasingly volatile,” the note said.

BMI's measurement of political risk. Chart / BMI

“While this tripartite arrangement delivered a strong mandate in the 2023 general election, managing ideological divergences has proven more challenging than we anticipated.”

BMI is owned by Fitch, the global credit ratings agency, but is separate from the ratings team. BMI’s analysis does not impact on the Government’s credit rating with Fitch.

The analysis said the coalition’s “broad ideological mix” had produced a “contradictory policy agenda”.

It cited tensions over the Regulatory Standards Act, which the Act Party promoted but NZ First has said it will campaign to repeal.

This, it said, underscored “deep fractures within the coalition”.

“Our baseline view remains that the coalition will serve its full term through to 2026, but its cohesion is under severe strain.

“The clash over regulatory reform, persistent Treaty debates and deteriorating public confidence signal a turbulent road ahead,” the note said.

“With polls tightening and economic headwinds persisting, the Luxon Government faces a pivotal period that will shape its survival – and the trajectory of New Zealand politics – heading into the next elections.”