NZ: Healthy fiscal books allow for big spending election promises, if necessary - TDS

Credible budget surpluses and a lower debt profile via a strong economy are the key themes for New Zealand’s pre-election fiscal update, according to analysts at TDS.

Key Quotes

“The NZDMO says the NZGB program remains unchanged at $NZ7b over the next three years.”

“The 2016/17 budget surplus was substantially upgraded to $NZ3.7b (+1.4% of GDP) while 2017/18 at $NZ2.9b (+1.0% of GDP) remains all-but unchanged from May.”

“With plenty of cash in the till, market attention now turns to the 23 September election. As the main opposition Labour Party is enjoying a resurgence in the polls just now, the risk is for even more fiscal stimulus over the horizon, supporting our case for the record low OCR to increase by +75bp over 2018 to 2.5%.”

“At present, NZGBs outstanding are projected to shrink, threatening already tight liquidity conditions. A freely spending Labour-led Coalition could delay this process.”

“The NZDMO reiterated that the new 20 April 2029 nominal bond via syndicate is coming by year end, and the repurchase of the 15 March 2019 commences this fiscal year, up to $NZ5b depending on market conditions.”