Contrary to expectations, New Zealand's surplus will not be a reality in 2014. Instead, chances are that a small deficit will show up. This was stated by Prime Minister John Key on Monday during a post-cabinet press conference. According to the PM, the Treasury's half-year fiscal and economic update on Dec. 16 would "project a small deficit instead of an anticipated budget surplus." Still the PM sounded confident that by June 30, a surplus could still be posted. "Historically, when you look at the half yearly forecast there have been lot of wild fluctuations. We think the numbers are looking OK", Mr. Key said.

Surplus Issue

The PM's comments assume significance as they come on the back of last week's warning by Finance Minister Bill English, who said achieving the forecast surplus of $297 million, is looking like "a challenge", reported Business Scoop. Behind the scare of a deficit, two factors are at work. One is the slower inflation and a lower dairy payout. Only last week, Finance Minister Bill English talked about these two issues as barriers to a surplus.

However, the FM did not forget to reassure that the economy is on track and incomes and jobs are going to rise in the next few years. The surplus projected by the treasury was $297 million in the financial year ending on June 30, 2015, as per the the pre-election economic and fiscal update of August. But it was lower than the projected surplus of $372 million in the May budget, reported NZ Herald.

China FTA

In the press conference, Mr. Key expressed the confidence that New Zealand's free trade agreement with China would be "modernised" to the same level as that of Australia's newly signed FTA with China. The Australian FTA is considered a better deal, bereft of many onerous caps on dairy exports to China faced by New Zealand's trade deal signed in 2008. Justifying a reboot of China FTA, Key said "Six years is a long time in FTA land. It's quite a technical issue how most favoured nation status works in those FTA's".

The PM also commented on China's central bank slashing the official cash rate over the weekend. Souunding confident about the Chinese market, the PM said Chinese president, Xi Xingping, who visited New Zealand, last week, had expressed confidence in their growth rates. On the fears of a slowing Chinese economy, the PM played it down saying that "China seems to be looking to double its average economic output per head of population in the next seven years, from US$7,000 to around US$14,000 by 2021."