Economy strengthening, books getting better

New Zealand’s Finance Minister Nicola Willis says the government’s pre-election Economic and Fiscal Update points to healthier growth and a clearer improvement in the public finances. The government reports that the deficit in the year ending July this year is now forecast to be $3.4 billion smaller than previously expected at the Budget, reflecting stronger economic momentum.

The update also projects significantly smaller deficits this year and next, followed by larger surpluses in later years, with the operating balance deficit shrinking from the $11.4 billion forecast at the Budget to $6.8 billion this financial year and to less than $1 billion next year. Over the following three years, surpluses are forecast to rise from $4 billion to almost $12 billion, alongside an expectation that debt will begin to decline as a share of the economy in 2028/29 and fall in dollar terms in 2030/31, described as the first such fall since 2017/18.

Finance Minister Willis also highlights reduced funding needs: borrowing is forecast to be $15 billion less over the next four years through reduced bond issuance, which is expected to lower borrowing costs. The update further forecasts average economic growth of 2.6 per cent and 220,000 more jobs, with wages rising faster than prices.

For FX traders, the key watchpoints are whether the forecast turnaround in the operating balance and the debt path holds up versus downside risks (the statement cites ongoing instability in the Middle East) and how wage-vs-price dynamics evolve into inflation and monetary policy expectations.