Pre-election Economic and Fiscal Update – economy “better than predicted”

The Pre-election Economic and Fiscal Update has been released today. Minister of Finance Grant Robertson’s take on it:


  • PREFU shows economy doing better than forecast
  • Unemployment to peak at 7.8%, down from 9.8% forecast in the Budget
  • Year-to-June accounts show tax revenue, debt and OBEGAL better than forecast
  • Global forecast downgraded as COVID-19 second waves and uncertainty grows
  • Balanced plan to support critical public services, manage debt and reduce the deficit caused by COVID-19

The Pre-election Economic and Fiscal Update released today shows that the near-term economic recovery has been stronger than the Treasury and many economists predicted at the May Budget, as the economy bounced back strongly out of lockdown.

“The Treasury now forecasts the unemployment rate to peak at 7.8%, down from 9.8% forecast in the Budget, because the economy is stronger than expected. That compares to an expected peak of 10% in Australia, while countries like the US and Canada have already recorded unemployment peaks above 13%,” Finance Minister Grant Robertson said.

“The unaudited Crown accounts for the year to 30 June 2020 back up the evidence of a rebounding economy, with core Crown tax revenue of $84.9 billion coming in higher than the $82.3 billion forecast, indicating more activity than expected.

“Net core Crown debt was 27.6% of GDP at 30 June, compared to the Budget forecast of 30.2%, and the OBEGAL deficit of 7.7% of GDP at 30 June was lower than the 9.6% forecast.

“These are signs that the New Zealand economy is robust, and that our plan to eliminate COVID-19 and open up the economy faster is the right approach. We can see this in the forecasts, with the New Zealand economy predicted by the Treasury to grow by an average of 4.2% across 2021 and 2022, compared to Australia at 3.6% and the US at 3.5%.

“The Treasury – similar to other economists – initially forecast June quarter GDP to fall by about 23.5% in June from March. In today’s forecasts, the Treasury has reduced that to 16%. All this goes to show is that forecasting month-to-month, let alone years in the future, is incredibly difficult with such an uncertain global environment and an unpredictable virus.

“However, global headwinds and this 1-in-100 year economic shock caused by COVID-19 will have a long-term effect on the Government’s books.

“The forecasts illustrate our balanced plan to manage debt and reduce the deficit caused by COVID-19, while protecting our investment in services like health and education.

“COVID-19 is hurting economies around the world but because New Zealand went into this with low debt and a growing economy, we will come out better than other advanced countries,” Grant Robertson said.

“Policies like the Wage Subsidy, business tax refunds and small business cashflow loans protected jobs and kept businesses going. We’ve also invested to secure PPE and ventilators, and make sure our testing and contact tracing systems are world-class. Taking on debt to fund this response is the right thing to do as we fight COVID-19.

“There is no free lunch here.These measures require significant investment. It has been necessary to use the Government’s strong financial position to do this.

“What counts is our strong track record. Before COVID-19, despite constant urging to the contrary we stayed disciplined with our spending and reduced debt below 20% of GDP while successfully investing in critical public services.

“Our strong starting position that means even at its peak of around 56%, New Zealand’s net debt will be considerably lower than other economies around the world – advanced economies went into COVID-19 with net debt averaging about 80% of GDP.

“The PREFU’s long-term projection model shows debt reducing to 48% of GDP by the end of the projection period. The difference between debt of 56% and 48% at the end of the projection period represents $46 billion less debt than if debt just remained at its peak.

“The projections show the deficit caused by COVID-19 reduces steadily each year from 10.5% of GDP this year, to less than 1% of GDP by June 2028.

“The PREFU also shows the benefit of locking in low interest rates for the long-term debt that has been used to fund the response, with annual core Crown finance costs forecast to reduce by around $800 million over the next four years.

“Because the Government can borrow for 20 years or longer at rates below 1%, it makes sense to lock these in now to fund the response before interest rates rise. Because the Treasury has already been able to secure more funding at lower rates, and because the Government’s cash position has improved since the Budget, the Treasury today announced it has reduced its debt programme over the next four years by $10 billion.

“There are challenges ahead, but we have a five point plan to grow the economy, support businesses and seize the opportunities created by our world-leading COVID response.”


While the economy may not be as bad as predicted the effects could have been delayed and may be yet to bite. Or not.

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33 Comments

  1. John J Harrison

     /  16th September 2020

    Pete, I don’t share your optimism.
    The documents advise the net debt to hit 55% of GDP in 2024.
    An unheard of level in our history.
    Unemployment to hit 7.7% and remain over 5% until 2027.
    Worse, the next 13 years will all be in deficit with next years alone projected to be $32 Billion which is nearly 11% of GDP.
    Unemployment will remain elevated for years and any economic recovery far slower than previously expected.
    The current figures are less severe than originally projected solely due to the $Billions in borrowed money utilized to keep the employed from becoming unemployed.
    But that is now at an end.
    We cannot borrow our way out of this recession.

    Reply
    • Duker

       /  16th September 2020

      “The documents advise the net debt to hit 55% of GDP in 2024.”
      The story says even their predictions 6 months are wrong , Im absolutely sure their predictions for 2024 will be so ridiculously wrong that we will LOL.

      Net core Crown debt was 27.6% of GDP at 30 June, compared to the Budget forecast of 30.2%,
      2.5% over estimate just 6 months ago . Oh dear why does anyway take any creedence to the ‘knobs’ at Treasury anymore

      Even the trading balance of payments has come in with a large surprise surplus. What has happened is the lockdowns cut back massively on Spending not production.

      Importing stuff from overseas and people just buying things doesnt do much for the economy in normal times, less important now

      Reply
      • John J Harrison

         /  16th September 2020

        Duker, we can only comment on what they have produced.
        They are their best predictions at this time.
        By 2024 our debt could be 65% of GDP – who knows ?

        Reply
        • Duker

           /  16th September 2020

          Treasury admits their figures are rubbery, so need need to woryy your silver head about going higher – they arent and are tracking lower than forecasts already
          “Both Secretary to the Treasury Dr Caralee McLiesh and Robertson were at pains to point out the figures are somewhat rubbery, and the forecasts are only based on current knowledge and what seem like reasonable assumptions in an environment that has changed dramatically since the start of this year.
          In other words, they should be taken with more than a grain of salt.
          https://www.stuff.co.nz/national/politics/opinion/300107917/election-2020-no-matter-who-wins-the-election-the-belt-will-have-to-tighten
          Malpass writes the usual Dominion tropes ‘ belts tighten’ – when thats the last we need as it will deepen the economic malaise and no need to as the money is there from broowing at negligible interest rates or Reserve bank ‘magic wand’

          Reply
          • John J Harrison

             /  16th September 2020

            Duker, most impressed you can forecast with certainty that the 2024 % will be not as bad as suggested.
            You clearly are a fortune teller.

            Reply
            • Duker

               /  16th September 2020

              The US is already has Debt at 100% of GDP. Not at the end of the covid crisis but NOW
              Like I said dont worry your silver curls about things you dont understand

            • John J Harrison

               /  16th September 2020

              Duker, quiet correct.
              Where you go totally wrong with your assumptions is that the U.S. has a dynamic economy, governed by those who believe in self enterprise and loath socialism.
              They can well afford to pay both the principal and interest.
              Why do you think the U.S. dollar is the currency for world trade ?
              Unfortunately in little N.Z. we have an economy basically run by the government that has no clue in the workings of the real world.
              Remember, the “ Captains Call “ on destroying our Oil and Gas industry along with its high paying jobs in Taranaki?
              Could only happen in a socialist country where the loss of $Billions and thousands of jobs did not upset Ardern’s morning tea.
              Bugger the workers !

            • Blazer

               /  16th September 2020

              ‘ U.S. has a dynamic economy, governed by those who believe in self enterprise and loath socialism.
              They can well afford to pay both the principal and interest.’

              Total rubbish….a magic show….that all the world must now play…U.S economy is based on financial chicanery….totally eclipses productive enterprise

              https://usdebtclock.org/

            • Duker

               /  16th September 2020

              Taranakis oil industry hasnt been destroyed , the oil price drop did that.
              Only change is NEW offshore exploration is halted , yet because of oil price drop existing explorers are handing in their leases – they paid good money for.
              Nothing has changed elsewhere.
              US has many socialist attributes , Agriculture is socialism based from government subsidised crop insurance to massive farmer subsidies.
              How do you think Tesla built its latest factory …with government subsidies

              Yes the US has a bigger GDP per head than us , but The debt is % of total GDP , if their economic system was so great it should be lower debt % GDP not more.
              The economic illiterates like Harrison … used cars or real estate , producing nothing

    • Corky

       /  16th September 2020

      Agree. This is just the beginning. We are now at the sharp end of electioneering. Time for National to apply the hurt. Barry Soper was shocked by the figures. Figures he has never seen before during his time in parliament. The inevitable comparisons with Australia will now begin.

      Reply
      • Duker

         /  16th September 2020

        Soper shocked ?
        hes forgotten this when unemployment reached 11% not 7.5% under that economy wrecker Ruth Richardson

        Reply
        • Corky

           /  16th September 2020

          He’s still in shock. I have to take the man at his word.

          What were the other economic indicators like at the time? Don’t forget, taking one indicator out of the overall picture is disingenuous.

          Reply
          • Duker

             /  16th September 2020

            US Debt is already at more than 100% of GDP , and Soper is shocked we could go over 50%
            He needs to get out more … travel..broaden his mind…learn something

            Does Soper even know we have the Cullen Fund at $40 bill plus …who should we thank for that?

            Reply
            • Corky

               /  16th September 2020

              Comparatives are not really applicable because of different economic structures and sizes of different countries.

              Talking of getting out and travelling:

              ”Japan, with its population of 127,185,332, has the highest national debt in the world at 234.18% of its GDP, followed by Greece at 181.78%.”

              We have 5 million people. That’s not a big generating unit. Add to that a government idealogically driven, and you can bet our debt to GDP ratio will be a big problem in future.

              I would suggest you have a word to our resident fundermantlist Christian and ask them to pray we don’t have another natural disaster. That would sink us.

            • Duker

               /  16th September 2020

              It’s a % , that means it IS relative to each countries GDP, we aren’t talking a measly 10% diff here.
              Keep digging the hole that you are in as you clearly don’t understand a thing.

            • Corky

               /  16th September 2020

              ”Keep digging the hole that you are in as you clearly don’t understand a thing.”

              Sounds like Griff speaking. So just for the record and arguments shake.

              New Zealand – debt to GDP ratio 60%
              US – debt to GDP ratio 110%

              Using a comparative approach ( or even a single country figure), NZ is in a better position for recovey and economic flexibility? If not, what’s the using of comparing countries?

              Duker:

              ”US Debt is already at more than 100% of GDP , and Soper is shocked we could go over 50%”

              ”It’s a % , that means it IS relative to each countries GDP.”

              Is the US ratio relative to us?

              See your problem? . You post big, think small…and bs your way out of your ignorance.

            • Duker

               /  17th September 2020

              NZ isnt yet 50-60%, its more like 25% NOW
              The US is say 110% NOW and likely to go much higher.

            • Corky

               /  17th September 2020

              ”Sounds like Griff speaking. So just for the record and arguments shake.”

            • Duker

               /  17th September 2020

              is that your argument….. that the US has government debt 4-5 times greater ( by %GDP) than NZ does NOW because of something Griff.
              Admit you have NO real answer and NZ even when it gets to say 50% will be very well positioned compared to other similar countries

              “Australia currently has one of the lowest national debt levels in the world, so we are in a good place to be able to do this. At the moment, net Federal Government debt is just shy of 20 per cent. Once we add the $400bn of debt, it will take debt to about $1 trillion, or around 50 per cent of GDP.”
              https://www.ey.com/en_nz/covid-19/oceania-covid-19-response/is-australias-debt-level-unprecedented

    • Blazer

       /  17th September 2020

      ‘We cannot borrow our way out of this recession.’

      The Key Govt borrowed more than the cumulative borrowing total of ALL Govts in Nz’s ..history.


      An unheard of level in our history.’

      Reply
  2. Blazer

     /  16th September 2020

    I share the surprise at how optimistic this outlook is.

    Worldwide net debt is virtually unpayable ,regardless….interest only ,for as long as it takes for inflation to…erode it.

    Reply
    • Duker

       /  16th September 2020

      Not so , the world is awash with money looking for places to go, recent Treasury bond sales were for NEGATIVE interest rates, ie they are paying us to borrow from them.

      “– advanced economies went into COVID-19 with NETT debt averaging about 80% of GDP.”
      NZ was much much lower originally around the 25% level.
      The main reason why was the $40 bill Cullen Fund started by labour but put on hold by Key and English has balanced the gross debt

      Reply
      • Blazer

         /  16th September 2020

        Credit is not a problem….repaying it ,low interest rates or not….still has a negative impact when it is too high a proportion of revenue.

        Reply
  3. Duker

     /  16th September 2020

    That old war horse Prebble springs up in the Herald ( where else) complaining the election is boring
    His answer?
    ‘If National were to pledge to lift the lockdown and sack the Reserve Bank board this election would suddenly become exciting.”
    https://www.nzherald.co.nz/politics/news/article.cfm?c_id=280&objectid=12365140
    “No party will acknowledge that there is a very risky experiment underway. The Reserve Bank is printing $100 hundred billion dollars. Interest rates will soon be negative. It is social credit. If it fails New Zealand will be another Argentina.”
    he seems to be blind to that is what every other western country is doing, led by USA and EU. Indeed the US has been doing it since 2008 .
    Can there a more ignorant person around , why does the Herald give him space…they have Joyce Hooton Hosking as their right wing noise makers , isnt there no more room in the National party special lift in the Herald building

    Reply
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