NEW ZEALAND: Growth Environment Drives Weaker Public Finance Outlook
The NZ government continues to expect the budget to be in surplus in FY29, while the timing is unchanged the amount has been revised down and is flat as a share of GDP. From FY26 deficits were revised higher due to weaker revenue as growth was revised down near-term and unemployment higher. A similar pattern is likely in the updated RBNZ staff forecasts released May 28. CPI inflation was revised up this financial year but still around the mid-point of the target band over the forecast horizon.
- FY25 deficit is expected to be at 2.3% of GDP down from 3.0% estimated in December, while FY26 is forecast to be 0.3pp higher at 2.6%. Both the revenue and expenditure shares of GDP have been revised down across the horizon.
- Net debt forecasts are lower near term with FY25 revised down 2.4pp to 42.7% of GDP but the peak remains around 46% in FY28. NZ will increase its bond programme by $3bn in FY25.
- Production-based GDP growth is now forecast to contract 0.8% in FY25 down from +0.5%, while FY26 was revised down 0.4pp to 3.3%. The unemployment rate should still peak at 5.4% and then trend lower to 4.3% by FY29.
- Key policy initiatives announced include a tax incentive to increase capex and in terms of spending there will be increased funding for defence ($1bn 2025 & $1.6bn 2026), infrastructure ($1bn hospitals, $0.7bn schools), cost-of-living support and for frontline public services. There is $1.338bn of new measures net of additional revenue/savings ($4.9bn), while there is $6.8bn of new capital investment.
- The default employee/employer contributions to KiwiSaver will rise 1pp to 4% by April 2028.
- Monthly CPI releases will start in 2027.
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AUSSIE BONDS: Richer On A Data-Light Day, Apr-29 Supply Tomorrow
ACGBs (YM +5.0 & XM flat) are mixed but sitting near Sydney session highs as trading resumes after the Easter weekend. The local calendar has been light today ahead of S&P Global PMIs tomorrow.
- Cash US tsys are slightly mixed, with a flattening bias, in today's Asia-Pac session after yesterday's long-end sell-off.
- Cash ACGBs are 2-7 bps richer with the AU-US 10-year yield differential at -14 bps.
- Swap rates are 1-5 bps lower, with the 3s10s curve steeper.
- The bills strip has bull-flattened, with pricing +1 to +5.
- RBA-dated OIS pricing is 1-8 bps softer across meetings today. A 50bp rate cut in May is given a 24% probability, with a cumulative 122bps of easing priced by year-end (based on an effective cash rate of 4.09%).
- The AOFM plans to sell A$1000mn of the 3.25% 21 April 2029 bond tomorrow.
CHINA PRESS: Expectation For PBOC Easing Increases In Q2
The People’s Bank of China will likely cut the reserve requirement ratio or the interest rate in Q2, taking into account the changing external environment and domestic housing market and price trends, said Wang Qing, analyst with Golden Credit Rating. The policy interest rate could see a 30 basis point reduction to lower the financing costs of the real economy significantly. However, Ming Ming, chief economist of CITIC Securities believes, given the stock market recovery and depreciation pressure on the yuan, the PBOC will focus on expectation management in the near term and retain policy room to deal with further uncertainty.
CHINA PRESS: China Unveils New Plan To Open Up Service Sector
China unveiled a new initiative aimed at expanding pilot programs to open the country's service sector further, which includes 155 pilot tasks with a strong focus on telecommunications, healthcare and finance, Yicai.com reported. The initiative also added nine more pilot cities, including Dalian and Ningbo on top of the initial 11 regions, the newspaper said.
