New global economic forecasts show importance of running surpluses, paying down debt

The International Monetary Fund’s (IMF) latest global economic forecasts are a timely reminder of why the Coalition Government is running surpluses, sensibly managing debt and focussing on policies to support growth, Finance Minister Grant Robertson says.

The IMF has upgraded its growth forecasts for New Zealand compared to April, closer to the Treasury’s forecasts. While this is welcome, the broader IMF World Economic Outlook released today also shows why we need to keep a close eye on international economic developments.

“The global outlook shows a downward revision in global growth forecasts over the next two years. Global economic growth of 3.7 percent in 2018 and 2019 is down 0.2 percentage points each year compared to April,” Grant Robertson said.

“The global growth downgrade is largely due to rising international trade tensions and disappointing global activity. It’s a timely reminder of why the Government is ensuring the books are in order and strong enough to protect the economy and New Zealanders from any rainy day such as changes in the international economy.

“The IMF has recognised New Zealand’s sound economic fundamentals, with forecasts for growth of around 3% in 2018 and 2019. The upgraded view of New Zealand’s economic outlook follows the IMF’s review of Budget 2018, which included growth-friendly policies like the R&D incentive, the Provincial Growth Fund, and record transport infrastructure investment.

“While the IMF’s forecasts are slightly below the Treasury’s, they are strong compared to other advanced economies. The average forecast New Zealand growth rate over 2018 and 2019 is stronger than forecasts for Australia, the US, the Euro area, Japan, Canada and the UK,” Grant Robertson said.

In a second report released today, the IMF said New Zealand’s fiscal outlook is positive, and that the Government is expected to continue running surpluses and controlling debt.

“The IMF’s Fiscal Monitor used New Zealand as an example of good practice for fiscal management. The IMF expects the New Zealand Government’s financial position to remain better than peers including Australia, Canada, the UK, the US and the Euro area, while our debt will remain lower than these other advanced economies,” Grant Robertson said.

“The Government financial statements released yesterday confirmed our commitment to sound fiscal management. At the same time, we are making important investments including significantly increased funding of health, education, housing, family support and infrastructure.

“It’s important to remember that the Government accounts are for the year ended 30 June 2018, and the better-than-expected surplus is in part due to one-off factors. Calls for ongoing increases in spending need to keep in mind that there first needs to be confidence that the better-than-expected results will continue year after year, as opposed to just being a one-off.

“Due to the IMF’s comments today on the rising risks to the global economy, it’s prudent that we wait until the Treasury releases its next set of forecasts in mid-December,” Grant Robertson said.