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IPS

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IPS & IPANZ Seminar. The 2009 Budget and Macroeconomic Outlook. Jean-Pierre De Raad (NZIER) ... Part 2- Macro Impact of Fiscal Stimulus. Macro Context 'Horns ... – PowerPoint PPT presentation

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Title: IPS


1
IPS IPANZ SeminarThe 2009 Budget and
Macroeconomic Outlook
  • Jean-Pierre De Raad (NZIER)
  • Derek Gill (IPS) 2 June 2009

2
Part 1 Comments on Budget 2009
  • Macroeconomic Context
  • NZ Macroeconomic Outlook
  • Fiscal Strategy Outlook
  • Emergent Strategy?
  • Part 2- Macro Impact of Fiscal Stimulus

3
Macro Context Horns of a dilemma
  • the global economy is experiencing the deepest
    most synchronised recession since the 1930s
    (2009 Budget ES P1)
  • Consensus Trading Partner Growth Forecast
    (2009-11 Calendar AAPC) 2.5,1, 2.2
  • Perfect Storm Inventory Cycle, Credit Crunch,
    Asset Price falls
  • Sharpest Real Economy/ inventory cycle since the
    1930s e.g. Q1 2009 first (non war) fall world
    trade volumes, Japanese exports fell 26 and RGDP
    15.2 (apc).
  • Financial Crises trigger prolonged recessions
    output 9 fall over 2 years, 35 fall in house
    prices over 6 years (Reinhart Rogoff 2009 AER
    PP)
  • Stock Market Crashes (25) go with 30 chance
    of major recessions (10 falls in RGDP) and 11
    chance of depression (25 fall in RGDP)
  • (Barro 2009 NBER WP 14760)

4
NZ Macro Outlook- Between a rock and a hard
place
5
NZ Macro Outlook- Between a rock and a hard
place
  • Comparison with other forecasts

6
How does the current recession compare with
previous recessions?
7
Fiscal Strategy Outlook Balancing the short
medium term?
8
Fiscal Strategy Outlook Balancing the short
medium term?
  • Revised Long term debt objective (new net debt
    peaks at 40 GDP aimed at 30 2020s)
  • Cf 20 Gross Debt ratio NZSF (2008 Budget P48)
  • Reduce future operating allowances increases to
    1.1b. from 2010 (from 1.4b in 2009, 1.7
    previously)
  • Delay 2010 2011 tax cuts
  • Suspend NZS contributions until surpluses

9
Trends in the key fiscal aggregates (GDP)
  • Core Revenues stable around 32 despite tax cuts
  • Core Current Spending increase from 32 (2008) to
    nearly 37 (2010-2012)
  • Operating Balance (ex NZSF, accy /-)
  • 3 (2008) -5 (2010-2133)
  • Large deterioration in new net core debt from 6
    in 2008 to 2013
  • Central -30.9 Rosy -22.5 Gloomy -50

10
Trends in Sector Shares (NGDP)
  • Where is 5 growth in core spending in 2008/10
  • Social Welfare 2 (1.7b in 2010 only)
  • Health - 1 (1.0b in 2010 only)
  • Education 0.8 (0.3b 2010 only )
  • Law Order 0.5 (0.15b 2010 only)
  • Other eg Defence 0.2 (0.1b 2010 only )
  • Nominal GDP broadly flat 2008 2011
  • How will a 1.7 increase (1.1b) be managed in
    2011?
  • How will long term trend growth in the big four
    be managed?

11
Emergent Strategy?
  • Task forces on Tax, Infrastructure, Electricity
    etc.
  • Predictable, pragmatic, if unexciting
  • Budget emphasised infrastructure spending and
    sustaining income support, health and (non
    tertiary) education, law and order
  • What will second term issues be
  • NZ Super 66 at 65?
  • Improving system performance eg health
  • Gloomy or Rosy Scenario?

12
Macro impacts of the fiscal stimulus
IPS/NZIPA lunchtime seminar
2 June 2009
13
Supporting jobs one of three objectives in budget
14
10b fiscal stimulus package pre budget 09
  • fiscal impulse indicator of 5.4 of GDP

b
15
Sagging income puts dent in tax revenues
16
Tax rises spending cuts to curb rising debt
17
Fiscal stimulus supports jobs
deviation from base case
18
But it has to be paid back
deviation from base case
19
Stimulus does not help external imbalance
20
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