New Zealand BPS: Fiscal Impulse to turn expansionary, China is a risk – ANZ

ANZ Research team takes note of the expected fiscal stance in New Zealand over the next five years and the risks to the economic outlook in its report on ‘2016 Half-Year Economic and Fiscal Update (HYEFU) and 2017 Budget Policy Statement (BPS).

Key quotes

The fiscal impulse is expected to turn expansionary in 2016/17 and 2017/18, largely thanks to capital spending increases. The fiscal stance was contractionary to the tune of 0.4% of GDP over the 2015/16 year, but it becomes positive to the tune of 0.9% and 0.1% of GDP respectively over 2016/17 and 2017/18 respectively. Beyond that there is “payback”, neutralising the overall fiscal impulse over the next 5 years.

Risks to the outlook are assumed to be greater than in the Budget, and the HYEFU contains two scenarios. The first assumes slower trading partner growth (especially in China). In this scenario, growth, tax revenue and OBEGAL are all assumed to be lower. The second explores the inflationary impact capacity constraints may have on the economy – potentially leading to faster nominal growth, higher tax revenue and better surpluses.