Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 

Budget 2011: Growth to peak at 4% on Christchurch rebuild

Budget 2011: Growth to peak at 4% on Christchurch rebuild

By Pattrick Smellie

May 19 (BusinessDesk) – Inflation-adjusted economic growth will peak at 4% in 2013 before dropping back to 2.7% in 2015 as the short term boost from rebuilding Christchurch recedes, say updated economic forecasts published in the Budget.

Gross domestic product is expected to grow in real terms by just 1% in the year to June, 1.6% in the June 2012 year, and then 4% in the June 2013 year before dropping back to 2.7% in 2015. Driving those trends is an anticipated 53.5% increase in residential housing investment in 2013, and another 17.4% rise in 2014.

Over that time, inflation will fall back within the 1 to 3% target range, and is forecast at 2.6% in 2015, when the Treasury expects unemployment will have dropped from 6.8% at present to 4.6% of the workforce.

Although the Budget’s spending cuts and bullish tax revenue forecasts keep public debt just below the 30% of GDP level that might worry credit rating agencies, the forecasts show little improvement in New Zealand’s broader external position.

The balance of payments current account deficit, measuring the extent to which the country is consuming foreign capital to live beyond its means, improves because of reinsurance funds flowing into the country ahead of Christchurch reconstruction, turning briefly positive in the current financial year.

However, it blows back out to 6.9% by 2015 in the latest forecasts, approaching the 8% levels that analysts regard as unsustainably high. Likewise, New Zealand’s net external investment position only briefly improves and is back out at 85.3% of GDP in 2015, compared with 86% today.

This high level of foreign, mainly private debt is the key factor that continues to concern credit rating agencies, with Standard & Poor’s leaving New Zealand on a negative outlook for its AA+ rating in a statement released shortly after the Budget was published.

The forecasts also assume a significant fall in the exchange rate, from a high point of 67.2 on a trade-weighted index basis today to 56.0 in 2015. That’s more optimistic than the central bank’s latest forecast in its March monetary policy statement, which predicts the TWI falling to 63.5 by 2014.

While strong terms of trade caused by high export commodity prices are expected to remain, “long term fundamentals such as the requirement for external balance are expected to see the exchange rate fall,” the Treasury says. “A narrowing of the positive differential between local and global interest rates also contributes to the lower exchange rate.”

The forecasts assume that oil prices slip back from current levels to around US$100 a barrel and remain around that price over the forecast period. However, the Treasury identifies rising fuel prices as a risk to the expected pick-up in consumer spending, while conceding the global economy faces a greater risk of growing more slowly than the 4% annual growth trend assumed in the Budget.

“The international economy remains a source of downside risk to New Zealand, with the possibility of rising global imbalances causing increased policy tension, the need for significant structural and fiscal policy change in many developed economies (and) continued financial difficulties in a number of peripheral European economies.”

The forecasts also reveal a substantial difference in view between the Treasury and the Inland Revenue Department on the tax take over the four years covered in the forecasts, with the IRD estimating $1.5 billion less tax than the Treasury. This is a “larger difference than is usually the case,” the Budget documents say.

There is substantial risk also to the government’s plans to produce a surplus in 2015 from lower growth rates than forecast.

A 1% lower than forecast rate of nominal GDP growth would, by 2015, strip $3.38 billion from annual revenue expectations, with the exact timing of the Christchurch rebuilding phase being a key uncertainty.

(BusinessDesk)

© Scoop Media

 
 
 
Business Headlines | Sci-Tech Headlines

 

Statistics: Building Activity Down In September Quarter
The volume of building activity in New Zealand fell 8.6 percent in the September 2021 quarter, compared with the June 2021 quarter, Stats NZ said today. Residential building activity fell by 6.4 percent in the September 2021 quarter, while non-residential building activity fell 12 percent... More>>


Government: David McLean Appointed As KiwiRail Chair

David McLean has been appointed as Chair of KiwiRail Holdings Ltd, the Minister for State Owned Enterprises Dr David Clark and Minister of Finance Grant Robertson announced today... More>>


Dairy NZ: ‘More Milk From Fewer Cows’ Trend Continues In A Record Year
Vodafone says it has 10,000 customers using its Wi-Fi Calling service. It took less than three months to reach that milestone; the service began operating in September... More>>



Xero: Data Reveals ICT Expenditure Key To Small Business Sales Growth
Xero, the global small business platform, today released a new report which shows New Zealand small business ICT expenditure has increased 25 percent compared to pre-pandemic levels - more than the UK (20%) and Australia... More>>


Fonterra: Lifts Forecast Farmgate Milk Price Range And Revises Earnings Guidance At First Quarter Update

Fonterra Co-operative Group today lifted its 2021/22 forecast Farmgate Milk Price range, reported a solid start to the 2022 financial year and revised its earnings guidance... More>>


Canterbury Museum: New Research - Bald Haast's Eagle Feasted On Moa Guts

New Zealand’s extinct Haast’s Eagle (Hieraaetus moorei), the largest known eagle, gulped down viscera like a vulture and may even have been bald, new research suggests... More>>

ABC Business Sales: Demand High For Covid-proof Businesses
Despite the continuing challenges facing businesses in this Covid environment, right now there are more buyers looking for a small-medium sized business than there are sellers in the market... More>>