Political & Economic week ahead: Treasury forecasts pessimistic

Click the NBR Radio box for on-demand special feature audio: Rob Hosking gives his in-depth analysis on the big stories to watch out for this week 

The week kicks off with the annual December statement from the Treasury, accompanied by the government’s budget policy statement for 2016.

This year it is more important than most – the Half Yearly Economic and Fiscal Update, to use its proper title, will include an updated set of forecasts as well as a pointer to how the government might set its fiscal targets now it has attained a budget surplus. 

The Treasury’ economic forecasts are understood to be more pessimistic than some private sector forecasters – not to mention the Reserve Bank – and that is giving ministers a little less room to play with than they would like. 

But aside from that mostly political issue, there is also the longer-term policy issue of how to set a workable, stable target for debt reduction and keep the government books on an even keel as not only New Zealand but also the world economy adjusts to a new, more risk averse, and low-inflation world. 

Finance Minister Bill English will provide some indication of where the government is heading on this when the update is unveiled tomorrow afternoon. 

Elsewhere, the week is dominated by retrospective data for the current account deficit – released on Wednesday and providing some perspective of how far the dairy downturn has affected the country’s external balance.

GDP data is to be released on Thursday and this should be more robust than it was for the first half of the year, as the non-dairy parts of the economy, particularly tourism, have had a bumper winter. 

And overlaying all this is the decision by the US Federal Reserve to begin hiking interest rates, early on Thursday morning New Zealand time. 

That will trigger a fall in the New Zealand dollar, amid the anticipated global financial market volatility anticipated in the 24 hours or so following the decision. 

The question is how far – and for how long. Economists are increasingly taking the view the underlying strength of the New Zealand economy means the New Zealand exchange rate may not take the previously expected “hit.”  

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