Kia ora,

Welcome to Wednesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the international edition from Interest.co.nz.

And today we lead with news about Australia's 'cost of living' Budget.

But first, in the US last week's retail data wasn't flash again, coming in with a gain well below the inflation level. The expanded payrolls don't seem to be helping this sector.

And a couple of second-tier American confidence surveys, for SME business and investors, were both negative. Both think a recession is due.

Maybe a big order received by Boeing overnight from a European airline will help.

They need to get their debt ceiling issue behind them because it is a growing drag on sentiment. But that will be tough because hard-line Republicans have weaponised the issue.

And the US Fed's Financial Stability Report released late yesterday has them watching office building loans and other commercial real estate borrowing as the next big economic threat.

In China, exports rose strongly for a second straight month in April (up +8.5%) confirming international demand remains healthy. (Taiwan reported similar growth.) But China's imports shrank (-7.9%) which enabled them to post a larger trade surplus.

But despite that, China's SME confidence index is retreating too.

In Australia, lower March retail sales means that retail sales volumes fell -0.6% in the March quarter 2023, according to official data released yesterday. The fall in the March quarter follows a -0.3% fall in the December 2022 quarter. Nominal sales increases are less than retail inflation.

Accounting firm PwC is embroiled in a growing scandal about how it exploited its insider knowledge as a confidential contractor to the Federal Government on tax policy issues, leveraging this knowledge for the benefit of its wider high-income client base.

On the policy front in Australia, with household incomes are under intense pressure from higher prices, rising debt servicing costs and additional taxation payments, their Federal Budget was released overnight. That shows an economic windfall from stronger employment and incomes, some of which the Government is using to provide cost of living relief for the most vulnerable households. But their outlook is challenging, with economic output growth set to slow as higher interest rates bite.

The key household relief measures are a AU$15 bln package of welfare increases, bulk-billing incentives and energy bill discounts. On the other side, they are going after tax dodgers, and the wealthy who have superannuation balances greater than AU$3 mln which will be taxed at 30% from July 2025, up from the current concessional tax rate of 15%.

Their budget deficit profile has been revised lower reflecting the windfall from those stronger incomes (higher inflation and higher commodity prices) and the ongoing labour market strength. The cumulative deficit for the four years 2022/23 to 2025/26 is reduced to -AU$81 bln, down from -AU$182 bln in their October Budget, an improvement of AU$100 bln.

For 2022/23, the budget position has improved by AU$41 bln to be a wafer-thin surplus of +AU$4.2 bln or +0.2% of GDP. The last time the budget was broadly in balance was immediately before the pandemic, in 2018/19. But this surplus is a one–off, with the budget returning to deficit in 2023/24, a forecast -AU$14 bln deficit. It then widens to -AU$35 bln in 2024/25 and to -AU$37 bln the year following, or -1.3% of GDP in both those years.

The UST 10yr yield starts today at 3.52%, and unchanged from yesterday. 

The price of gold will start today at US$2035/oz and up +US$12 from this time yesterday.

And oil prices have risen +50 USc from yesterday to be just over US$73.50/bbl in the US. The international Brent price is just over US$77/bbl.

The Kiwi dollar is little-changed against the USD and now at 63.3 USc. Against the Aussie we are still at 93.7 AUc. Against the euro we are marginally firmer at 57.8 euro cents. That means the TWI-5 is now at 71 and basically unchanged from this time yesterday.

The bitcoin price is also little-changed today, now at US$27,629 and down just -0.7% from this time yesterday. Volatility over the past 24 hours has been low at just under +/- 1.0%.

You can find links to the articles mentioned today in our show notes.

You can get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston. And we will do this again tomorrow.