New Zealand budget likely to print healthy picture of fiscal outlook - ANZ

New Zealand’s budget that is set to release next week is expected to print a rosy scenario of the fiscal outlook. Growth is strong, inflation is slightly higher, and spending constraints continue. Larger projected surpluses and lower debt levels would give the government with plenty of options. Since the December update, the fiscal figures have been tracking well, noted ANZ. Tax revenue is at about 1 percent ahead of forecasts and more than 7 percent the same period last year. That gap is expected to be maintained through the projection period, with Treasury’s economic forecasts in line with an ongoing strong growth backdrop.

Near-term real economic growth figures might be revised slightly lower, but growth would continue to be projected to average about 3 percent more than the forecast period. Along with higher inflation, this might possibly see the level of nominal GDP around $6 billion above half-year update forecasts at the end of the projection period, stated ANZ.

“We are not expecting the Budget to contain much in the way of implications for monetary policy, at least not in the near-term”, stated ANZ.

The New Zealand central bank has made it pretty evident that it is going to take certain strong developments to sway it from its neutral stance. But the fiscal impulse is becoming more neutral after being a drag of about 1 percent of GDP on average since 2012. Overall, this implies the case that the downside risks regarding the OCR outlook continue to ease, added ANZ.

“We expect a slightly more expansionary fiscal stance than was presented in the Half-year Update but not enough to influence the stance of monetary policy”, added ANZ.