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Treasury warns growth might be weaker than December forecast

Monday 6th May 2019

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Treasury says partial indicators suggest New Zealand's economic growth has been throttled back and may be lower than it forecast in the December half-year update.

Among other things, the government's principal financial advisor pointed to still-weak business confidence in the New Zealand Institute of Economic Research's quarterly survey of business opinion. It noted that firms’ own trading activity, which tends to be a good lead indicator for economic growth, deteriorated over the March quarter.

According to the latest survey released in early April, a seasonally adjusted net 27 percent of firms expect economic conditions to deteriorate over the coming months compared with a seasonally adjusted 18 percent in the prior quarter. Regarding their own activity, a net 7 percent of respondents expect their own business activity will pick up in the next three months, down from 16 percent three months earlier. 

"The data suggests annual GDP growth of around 2.0 percent over the first half of 2019 — below December annual growth of 2.3 percent," Treasury officials said. 

In the December half-year fiscal update, Treasury said annual real GDP was expected to grow at an average rate of 3 percent per year over the next two years and would be up 2.9 percent in the year ending June 30, 2019. 

In its latest update on the first eight months of the year, Treasury also said the operating surplus was bigger than expected, primarily because it didn't spend as much as it anticipated, which helped offset a smaller company tax take than forecast.

The operating balance before gains and losses was a surplus of $2.25 billion in the eight months ended Feb. 28, more than the $1.91 billion projected in December. The Crown's tax take rose 5.9 percent to $53.87 billion, some $137 million below forecast. Corporate taxation was about $400 million short of expectations, largely due to provisional tax estimates and assessments coming in below forecast.

Among New Zealand's main trading partners, the Treasury noted Chinese growth has stabilised. While the annual growth rate of 6.4 percent in the March quarter was still significantly below the rates seen during the last couple of years, it is consistent with the Chinese authorities’ growth target of 6-6.5 percent.

However, "the stabilisation of growth in China has yet to spill over to other Asian economies," it said. 

In Australia, activity picked up in February and March, and the Australian budget included significant household tax cuts, which will support consumption later in the year. However, inflation remained subdued and this puts further pressure on the Reserve Bank of Australia to cut interest rates later this year.

(BusinessDesk)

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