Budget 2012: NZ markets snooze through announcements

Finance Minister Bill English reading his 2012 Budget in the House. Photo / Mark Mitchell

New Zealand financial markets mostly snoozed through Finance Minister Bill English's fourth Budget, although there was a minor flurry of activity when ratings agency Standard and Poor's issued its verdict on the announcement.

The New Zealand dollar ended at US75.15c, unchanged from its opening level, and was down from 75.24c on Wednesday.

The trade-weighted index was steady at 68.51.

In the interest rate markets, the two-year swap rate was at 2.39 per cent and the 10-year rate was at 3.76 per cent, little-changed on the day.

"It was a bit of a snooze session," BNZ currency strategist Mike Jones said. "It was a no-surprises Budget for the currency," he said.

"Neither the NZ dollar nor the interest rate markets moved."

However, Jones said there was a short flurry of activity when agency Standard and Poor's issued its verdict on the document.

S&P said the Budget would have have no immediate impact on the country's strong credit ratings, which reflected the country's fiscal and monetary policy flexibility, economic resilience, public policy stability and its sound financial sector.

But S&P said these strengths were moderated by New Zealand's very high external imbalances, which were accompanied by high, albeit falling, household and agriculture sector debt, dependence on commodity income, and emerging fiscal pressures associated with its aging population.

S&P said it would lower its ratings if New Zealand's external position continued to deteriorate.

Jones said that while S&P's view on the country's widening current account deficit were well known, the comments were brought into sharper focus by the release of data in the morning which showed a merchandise trade surplus of $355m was recorded in April, below market forecasts of about $475m and well down on the $1.15 billion surplus recorded in April 2011.

Both exports and imports were weaker than expected, but with the greatest weakness seen on the export side.

"Looking ahead, we expect that a marked decline in the terms of trade and gradual improvement in import demand is likely to see the trade accounts deteriorate further over the course of the next year," Deutsche Bank chief economist Darren Gibbs said.

A trade surplus of $3.6b was recorded in 2011, which Gibbs expected will fall to less than $1bn in 2012.

On the fiscal side, Gibbs said the Government's prediction of a Budget surplus for 2014-15, which assume GDP growth of around 3 per cent a year, appeared to be too optimistic.

"We think nominal GDP growth in 2012-13 is likely to be half of what the Treasury is projecting, suggesting revenue will fall short of forecasts," he said. "We also think the Government will find it difficult to hold to the very tight expenditure control implied by the Budget."

Gibbs did not expect to see a Budget surplus until at least 2015-16.