FXStreet (Delhi) – Mark Smith, Senior Economist at ANZ, notes that the NZ treasury is forecasting a respectable economic outlook, with growth averaging 2.7% over the forecast horizon.
• “Growth is forecast to accelerate as monetary conditions and the projected recovery in the terms of trade take hold. Nevertheless, the level of nominal GDP is projected to be $17bn lower by 2020 compared to the Budget.
• Much of the differences relative to the Budget was on the revenue side, where low inflation, the softer terms of trade and general economic backdrop contributed to a lower than previously forecast tax take.
• Overall, spending growth is expected to remain capped, and core Crown expenditure is expected to ease from 30.1% of GDP in 2014/15 to 29.1% of GDP by 2019/20. Importantly, new operating allowances were still projected at $2.5bn for 2017 Budget to be potentially used for tax cuts.
• Despite a better starting point, the weaker fiscal outlook also affects the expected timing of debt reduction. Net core Crown debt is now projected to peak at 27.7% of GDP in 2016/17 (26.3% in 2014/15 in Budget 2015) before easing to 24% of GDP by 2020 (16.9%). Net debt is not forecast to fall below 20% of GDP until 2021/22, one year later previously projected.
• Given that allocations from the $4.7bn future investment fund had already been made (with transport getting the lion’s share of funding), an additional $1bn per annum has been allocated to Crown capital spending. The Crown remains committed to using its balance sheet effectively and getting better value for money.
• Key themes in the 2016 Budget Policy Statement were similar to earlier years. Key priorities included maintaining rising operating surpluses over the forecast period to lower net government debt, reducing net government debt to 20% of GDP in 2020 (and between 0 to 20% over the medium term), and implementing a new funding policy for ACC. The Government also flagged tax cuts in 2017 “if economic and fiscal conditions allow”.
• The fiscal stance was contractionary to the tune of 1.3% of GDP over the 2015/16 period to 2019/20, in the same ballpark as in Budget 2015. This keeps the risk profile tilted towards a lower OCR.
• While the forecast downgrades may generate some headlines, what really matters is the trend, which remains positive. Our fiscal accounts still look healthy vis-à-vis global peers.”
Mark Smith, Senior Economist at ANZ, notes that the NZ treasury is forecasting a respectable economic outlook, with growth averaging 2.7% over the forecast horizon.
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