New Zealand’s Treasury revises economic and fiscal forecast; real GDP to grow 3.6 pct in 2017

The New Zealand Treasury has upgraded its GDP growth forecasts relative to Budget 2016. GDP growth is now expected to be 3.6 percent in the year to June 2017, gradually slowing to 2.3 percent by 2021. Moreover, an improved outlook for the terms of trade supports a lift in nominal GDP growth forecasts, which are cumulatively USD23.7 billion higher than in the Budget over the four years to 2020.

The stronger economy is expected to support a higher tax take for the government. Core crown tax revenue is expected to reach USD89.9 billion by 2020-21, from USD66.6 billion in 2015-16. An OBEGAL surplus is forecast for the year to June 2017, even after taking into account the impact of the recent Kaikoura quakes.

Moreover, net core crown debt is forecasted to reduce from 24.6 percent of GDP in 2015-16 to 18.8 percent of GDP (previously forecasted to peak at 25.6 percent in 2016-17). Although it is still early days, the Treasury estimates the direct fiscal costs of the earthquakes to be around $2-3bn, with the bulk of this relating to transport infrastructure. Some of these costs will be covered by insurance proceeds or existing resources.

Consequently, the updated Treasury forecasts include an additional cost to the government stemming from the Kaikoura quakes of USD1 billion. The Government has substantially increased its allowance for capital spending in the coming years, from USD900 million to USD3 billion in 2017. Thereafter, the capital allowance has been increased to USD2 billion per year, partly to accommodate the recent run of very strong population growth.

Also, there were small changes to the Government’s bond issuance programme. The government now intends to issue USD8 billion of bonds in the 2017 fiscal year (previously USD7 billion), USD7 billion in 2017-18 and 2018-19, USD6 billion in 2019-20 and 2020-21.

While not part of the fiscal projections, the current Finance Minister Bill English indicated that if he were to be elected leader in Monday’s caucus vote, his preference for the next Finance Minister would be Stephen Joyce, the current Minister for Economic Development among other responsibilities.

Meanwhile, the NZD/USD traded at 0.72, up 0.46 percent, while at 5:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at 61.71 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex