New Zealand government books "balanced" as new deficit forecast

The New Zealand government's books, which were in the black for the first time in seven years this year, will return to deficit in the 2015-2016 financial year on the back of slowing growth, the New Zealand Treasury forecast Tuesday.

Commodity export prices would remain low in the near term and domestic demand growth would be weak until the middle of next year, helping to hold down inflation and wage growth, said a report from the Treasury.

Unemployment, currently at 6 percent, would peak at 6.5 percent in March next year.

Following growth of 3.2 percent over the year to March 2015, annual average growth in real gross domestic product was forecast to slow to 2.1 percent in the year to March 2016 owing to weak global and domestic demand and lower terms of trade.

A recovery in the terms of trade was expected to see annual average growth increase to 3.6 percent in March 2018 before moderating to 2.2 percent in March 2020.

The government's operating balance, which saw a surplus of about 400 million NZ dollars in the 2014-2015 financial year, was expected to show a deficit of the same amount at the end of this financial year.

Surpluses are expected to return after that and to rise until 2020, said the report.

Finance Minister Bill English said the government would continue to focus on keeping a tight rein on spending, running surpluses and paying down debt.

The books were broadly in balance, so in the immediate future the government would not distinguish between forecasts of a small negative or small positive operating balance, English said in a statement.