Click to edit Master title style • Click to edit Master text styles – Second level New Zealand Government Debt • Third level – Fourth level Market Outlook » Fifth level September 2019
Click to edit Master title style Overview • Click to edit Master text styles – Second level Economic/Fiscal outlook • Third level – Fourth level » Fifth level New Zealand Government Bonds: risk-reward Government debt funding strategy
Click to edit Master title style • Click to edit Master text styles – Second level • Third level – Fourth level » Fifth level Economic/fiscal outlook
Click to edit Master title style Summary of forecasts Executive summary table • Click to edit Master text styles June years 2018 2019 2020 2021 2022 2023 – Second level Actual Forecast Forecast Forecast Forecast Forecast Economic • Third level Real production GDP (annual average % change) 3.2 2.4 3.0 2.8 2.4 2.4 – Fourth level Real GDP per capita (annual average % change) 1.1 0.7 1.5 1.5 1.3 1.2 Unemployment rate (June quarter) 4.4 4.1 4.0 4.1 4.2 4.3 » Fifth level CPI inflation (annual % change, June quarter) 1.5 1.8 2.0 2.1 2.0 2.0 Current account balance (% of GDP) -3.4 -3.4 -3.4 -3.4 -3.3 -3.3 Fiscal (% of GDP) Core Crown tax revenue 27.8 28.2 28.2 28.5 28.6 28.8 Core Crown expenses 27.9 29.1 29.4 29.6 29.0 28.8 Total Crown operating balance before gains and losses 1.9 1.2 0.4 0.6 1.3 1.7 Core Crown residual cash 0.5 -0.9 -1.3 -1.3 -0.2 0.3 Net core Crown debt 19.9 20.1 20.4 20.7 19.9 18.7 Net worth attributable to the Crown 44.9 43.4 42.5 42.1 42.8 43.9 Source: StatsNZ, The Treasury, BEFU 2019
Click to edit Master title style Growth cycle extended Real GDP growth • Click to edit Master text styles % 5.0 – Second level Forecast • Third level – Fourth level 2.5 » Fifth level 0.0 -2.5 Jun-05 Jun-08 Jun-11 Jun-14 Jun-17 Jun-20 Jun-23 Quarterly Quarterly % change Annual average % change Source: Statistics NZ, The Treasury, BEFU 2019
Click to edit Master title style Net migration and house prices Annual sum (000s) Annual % change • Click to edit Master text styles 80 40 – Second level 35 Forecast 60 30 • Third level 25 – Fourth level 40 20 » Fifth level 15 20 10 5 0 0 -5 -20 -10 Mar-00 Mar-03 Mar-06 Mar-09 Mar-12 Mar-15 Mar-18 Mar-21 Quarterly Net migration* House prices (RHS) *Prior to June 2015, net migration data is the old series, which was based on intentions Source: Statistics NZ, QV, The Treasury, BEFU 2019
Click to edit Master title style Economy near full capacity • Click to edit Master text styles % of potential GDP % of labour force 8 4 – Second level Forecast 3 • Third level 6 2 – Fourth level 1 » Fifth level 4 0 -1 2 -2 -3 0 -4 Jun-05 Jun-07 Jun-09 Jun-11 Jun-13 Jun-15 Jun-17 Jun-19 Jun-21 Jun-23 Quarterly Unemployment rate Output gap (RHS) Source: Statistics NZ, The Treasury, BEFU 2019
Click to edit Master title style But inflation remains muted CPI inflation (BEFU forecast) • Click to edit Master text styles Annual % change – Second level 6 Forecast • Third level 5 – Fourth level » Fifth level 4 3 2 1 0 Jun-05 Jun-08 Jun-11 Jun-14 Jun-17 Jun-20 Jun-23 Quarterly Source: Statistics NZ, The Treasury, BEFU 2019
Click to edit Master title style Terms of trade strong Index (2009/10=1000) • Click to edit Master text styles 1300 – Second level Forecast • Third level 1200 – Fourth level » Fifth level 1100 1000 900 800 Jun-05 Jun-08 Jun-11 Jun-14 Jun-17 Jun-20 Jun-23 Quarterly Terms of trade Source: Statistics NZ, The Treasury, BEFU 2019
Click to edit Master title style Business confidence - key risk • Click to edit Master text styles APC Net % 8 50 – Second level 40 6 • Third level 30 20 – Fourth level 4 10 » Fifth level 2 0 -10 0 -20 -30 -2 -40 -4 -50 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 Real GDP QSBO - Own Activity (RHS) Source: Statistics NZ, QSBO
Click to edit Master title style Operating surpluses sustained • Click to edit Master text styles NZ $billions 15 Forecast – Second level 10 • Third level 5 – Fourth level 0 » Fifth level -5 -10 -15 -20 -25 2009 2011 2013 2015 2017 2019 2021 2023 Year ending 30 June Operating Balance (excluding gains and losses) Source: The Treasury, BEFU 2019
Click to edit Master title style Plans for capital spending • Click to edit Master text styles NZ $billions 15 – Second level 10 • Third level – Fourth level 5 » Fifth level 0 -5 -10 -15 2018 2019 2020 2021 2022 2023 Year ending 30 June Operating Capital Residual cash Source: The Treasury, BEFU 2019
Click to edit Master title style Net debt contained • Click to edit Master text styles % of GDP NZ $billions 80 32 – Second level Forecast 70 28 • Third level 60 24 – Fourth level 50 20 » Fifth level 40 16 30 12 20 8 10 4 0 0 2009 2011 2013 2015 2017 2019 2021 2023 Year ending 30 June Net core Crown debt % of nominal GDP (RHS) Source: The Treasury, BEFU 2019
Click to edit Master title style New Zealand Government Bonds: risk-reward • Click to edit Master text styles – Second level • Third level – Fourth level » Fifth level
Click to edit Master title style S&P recently upgraded outlook • Click to edit Master text styles “New Zealand's credit profile reflects its very strong institutions Moody’s and policy effectiveness and a strong fiscal position compared to Aaa/Aaa (stable) peers. These credit features mitigate external and domestic – Second level vulnerabilities related to high reliance on external financing and elevated household debt.” Feb 2019 • Third level – Fourth level “ The ratings on New Zealand reflect the country's fiscal and Standard & Poor’s monetary policy flexibility, economic wealth and resilience, and AA+/AA (positive) » Fifth level stable public policy settings . These strengths provide the country with flexibility to offset potential risks related to its large external imbalances, high household and agriculture sector debt, dependence on commodity income, and financial system stability.” Jan 2019 “New Zealand's ratings are underpinned by very high governance Fitch standards, a demonstrated commitment to prudent fiscal AA+/AA (stable) management, and a credible policymaking framework that helps manage risks and respond to pressures. The country's high net external debt and elevated household debt are the key weaknesses for the credit profile.” Jan 2019 Source: Moody’s Investor Service, Standard & Poor’s, Fitch Ratings
Click to edit Master title style Strong institutions • Click to edit Master text styles Control of Corruption 100 – Second level 90 • Third level Voice and Accountability Government Effectiveness – Fourth level 80 » Fifth level 70 Political Stability and Rule of Law Absence of Violence/Terrorism Regulatory Quality Average of sovereigns rated AA (fc) and higher by S&P New Zealand Source: World Bank Worldwide Governance Indicators 2017
Click to edit Master title style Relative yield • Click to edit Master text styles % 5.0 – Second level 4.0 • Third level – Fourth level 3.0 » Fifth level 2.0 1.0 0.0 Aug 2012 Aug 2013 Aug 2014 Aug 2015 Aug 2016 Aug 2017 Aug 2018 Aug 2019 10-year yield: NZGB (rated AA (fc) by S&P) 10-year yield: Average of sovereigns rated AA (fc) and higher by S&P Source: Bloomberg
Click to edit Master title style NZGB yields • Click to edit Master text styles % – Second level 2.0 • Third level 1.5 – Fourth level 1.0 » Fifth level 0.5 0.0 -0.5 0 5 10 15 20 25 T erm (years) NZGB - nominal bonds* NZGB - inflation-indexed bonds (real yield)* * yields (mid rate) as at 27 August, 2019 Source: Bloomberg
Click to edit Master title style Government debt funding strategy • Click to edit Master text styles – Second level • Third level – Fourth level » Fifth level
Click to edit Master title style Changing funding needs • Click to edit Master text styles NZ$b NZ$b 20 90 – Second level Forecast 18 80 • Third level 16 70 – Fourth level 14 60 » Fifth level 12 50 10 40 8 30 6 20 4 10 2 0 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Annual bond issuance - year ended June Total Market Bonds on Issue (RHS) Source: The Treasury
Click to edit Master title style Forecast borrowing programme • Click to edit Master text styles – Second level • Third level – Fourth level » Fifth level Source: The Treasury, BEFU 2019
Click to edit Master title style Current NZGB portfolio • Click to edit Master text styles NZ$b 12.0 – Second level 10.0 • Third level – Fourth level 8.0 » Fifth level 6.0 4.0 2.0 0.0 Apr May Apr Apr Sep Apr Apr Sep Apr Sep Apr Sep 20 21 23 25 25 27 29 30 33 35 37 40 As at 30 June 2019 As at 31 March, 2019 Source: The Treasury
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