NZ Treasury upgrades economic and fiscal outlook

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The New Zealand government today released its Budget Policy Statement (BPS), its half yearly budget update. The BPS included updated Treasury forecasts, which showed that New Zealand’s economic growth and fiscal outlook are better than expected six months ago in Budget 2009 (see table).

The government now is focused on promoting a sustained recovery and permanently lifting economic growth rates, via six main avenues aimed at lifting productive investments and working towards more balanced growth. These include investment in productive infrastructure; removing red tape and improving regulation; supporting business innovation and trade; lifting skills; lifting productivity and improving services in the public sector; and strengthening the tax system.

Treasury now expects a stronger recovery in the next couple of years than forecasts in the May Budget, mainly owing to stronger trading partner growth, solid net immigration flows, higher international commodity prices, and rising house prices. The economy will start to expand in 2011 after contracting 0.4% in the 12 months to March 2010; this is a sharp upward revision from the 1.7% contraction forecast back in May. Unemployment now is expected to peak at a lower 7% (compared to 8% previously), with the drop in employment likely to be significantly less, although the jobless rate will remain elevated throughout 2010. The rising NZ dollar, however, remains a substantial negative for Kiwi exporters. Treasury expects, however, that exports will start rising in the March 2012 year.

The fiscal position remains challenging. The crisis “has left a hole in the government’s books that will take several years to rectify,” according to Treasury. In the Budget outlook in May, Treasury forecast that the operating balance before gains and losses (OBEGAL) would be NZ$9.3 billion in 2010-11. Now, the OBEGAL is forecast to be NZ$6.7 billion in 2010-11, a marked improvement. The Treasury expects it to return to surplus in 2016, compared to 2018 previously.

ENDS

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