Fitch expects slower GDP growth than Treasury

Monday, 14 January 2019, 6:57 pm
Article: BusinessDesk

Fitch expects slower GDP growth than Treasury

By Jenny

Jan. 14 (BusinessDesk) – New Zealand’s economy will
likely grow at a slower pace than Treasury is forecasting
due to weak business confidence and declining consumer
confidence, according to Fitch Solutions Macro

“We expect growth to slow due to continued
weak business and consumer sentiment which will weigh on
investment and private consumption growth, Fitch says.

is forecasting tax and other government revenue to rise 5
percent this year and 4.5 percent next year, well below
Treasury’s latest forecasts for growth of 5.7 percent and
5.5 percent respectively.

“Our forecasts are slightly
lower than the Treasury’s estimates, given our slightly
less sanguine view of the economy,” Fitch says,
emphasising that this view is independent of Fitch Ratings
and that the two arms of Fitch don’t share data or other

“We forecast real GDP growth to come in at
2.6 percent in 2019 and 2.3 percent in 2020 compared to the
Treasury’s more bullish forecasts of 3 percent and 3.2
percent respectively,” it says.

That’s despite Fitch
expecting government spending to rise.

Noting the
priorities the government outlined in December, it says
social security, welfare and healthcare will remain the
largest components of government spending with welfare
accounting for 29 percent of total spending and healthcare
at 16.1 percent.

“In particular, we forecast the share
of the pensionable population – those aged 65 and above
– to rise to 20 percent over the next decade from 15.6
percent in 2018,” it says.

While spending will rise,
money coming into the government’s coffers will be less
than previously forecast.

It noted that business
confidence remains on a downward trend with a figure of
negative 37.1 points in November, down from positive 24.8 in
June 2017.

“Continued weakness will likely have a direct
effect on corporate tax revenue which makes up 14.8 percent
of the country’s revenue.”

Consumer confidence has
also fallen to 115.4 points in October from a peak of 128 in
March last year “suggesting the potential for lower
consumer spending over the short term, especially as New
Zealand’s household debt remains high at slightly more
than 120 percent of GDP,” Fitch says.

“The slowdown in
consumer spending could also weigh on GST collection, which
makes up 24.3 percent of total revenue.”

dimmer view of New Zealand’s growth prospects is why it
expects the government’s fiscal surplus will likely shrink
to 0.8 percent of GDP this year and to 1.2 percent next year
from 2.1 percent in the year ended June 2018.

“This is
on the back of the country’s slowing economic growth which
we expect to weigh on revenue collection over the coming
quarters,” Fitch says.

Previously Fitch had been
forecasting a surplus of 2 percent of GDP and 1.9 percent
for this year and next respectively, although its forecast
for the current year’s surplus is above Treasury’s 0.7
percent of GDP forecast.

In any case, Fitch expects
government debt levels will remain healthy.

“It is one
of the least indebted countries among OECD economies with
total gross debt of 30.6 percent in 2018, comfortably below
the OECD average of 73 percent and on a declining

“As such, there is ample buffer for policymakers
to enact expansionary fiscal policy to support the economy
should growth decelerate significantly.”

In early
December, Fitch Ratings raised the outlook for New Zealand
banks to stable from negative, citing stabilising household
debt and slowing house price


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