PREFU shows no recession, growing economy, more jobs and wages ahead of inflation

  • Economy to grow 2.6 percent on average over forecast period
  • Treasury not forecasting a recession
  • Inflation to return to the 1-3 percent target band next year
  • Wages set to grow 4.8 percent a year over forecast period
  • Unemployment to peak below the long-term average
  • Fiscal Rules met - Net debt to peak at 22.8 percent of GDP in 2024/25 and return to surplus in forecast period (2026/27).

The Pre-election Economic and Fiscal Update released today shows New Zealand’s economy is turning the corner with projected growth meaning no recession, wages ahead of inflation and more people in work, even as the impact of challenging global conditions and the North Island Weather Events weigh on the Government’s books.

“The economy is holding its own in an uncertain global environment. The Treasury is forecasting average annual growth of 2.6 percent between 2023 and 2027, the addition of 105,000 new jobs and wages to grow faster than inflation,” Finance Minister Grant Robertson said. 

“Our economic plan to support New Zealanders dealing with the cost of living while investing in building a stronger, more resilient and inclusive economy is working.

“The economy is 2.9 percent bigger than a year ago and close to 7 percent larger since the start of the pandemic in 2020. The number of people in work rose by 113,000 in the June year – 69,000 more than forecast in May’s budget.

“We have a solid base as we face the challenges ahead. Unemployment is forecast to remain below the long-term average of 5.8 percent – peaking at 5.4 percent before declining to 4.6 percent at the end of the forecast period. Wage growth will outpace declining inflation, meaning household budgets will stretch further.

“The economy is turning a corner, but the challenges remain very real. New Zealand continues to feel the ongoing ripples of the 1-in-100 year economic shock from the global pandemic. Earlier this year, the country also experienced its second largest natural disaster.

“This has been reflected in the Crown accounts. While core Crown tax revenue was $3.9 billion higher than last year, it was $2.9 billion behind where Treasury had forecast it to be in May’s budget. Since May we have seen a further deterioration in the global economy, particularly in China, which will continue to have a direct impact on the New Zealand economy.

“In this uncertain environment, the Government has continued to respond to ensure we meet our balanced and responsible fiscal goals of a surplus in the forecast period and net debt below the limit of 30 percent of GDP. We acted swiftly in response to the deteriorating economic picture through our Fiscal Sustainability and Effectiveness Programme that found a further $4 billion savings on top of the $4 billion we found in May’s Budget.

“The deficit is forecast to fall from a peak of $11.4 billion in the current year to a surplus of $2.1 billion in 2026/27, a year later than projected in the Budget in May. Over the next four years, Treasury is forecasting real government consumption to decline on average by 0.2 percent a year which will help ease inflation pressures.

Net debt is projected to peak at 22.8 percent of GDP in 2024/25 and fall to 21 percent of GDP by the end of the forecast period. Our debt levels continue to compare favourably to the countries we often compare ourselves with. According to the IMF. in 2023 net debt will reach 36 percent in Australia, 95 percent in the UK and 95 percent in the US.

“Our continued focus on careful and prudent financial management is even more important as we know the North Island Weather Events will have a sizeable impact on the Government’s finances in coming years’ as we support the communities and regions affected with the recovery and rebuild. The Treasury estimates the costs of asset damage from the floods and Cyclone at between $9 billion and $14.5 billion, with half of that related to central or local government such as roads.

“Over $2 billion of support has been committed so far for the response and recovery from the North Island Weather Events. Another $6 billion in initial funding has been committed for a National Resilience Plan to focus on the longer term response, including meeting $1.7 billion in cost-sharing agreements with councils and future-proofing roads and other infrastructure such as flood protection, telecommunications and electricity networks.

“Our responsible financial management means we have the capacity to meet the impacts of extreme weather events and future challenges. As the major credit ratings agencies have noted recently, our debt levels are among the lowest in the world and well below the Government’s debt ceiling of 30 percent.

“Treasury’s long-term projections also show surpluses are maintained on average over the period, while net debt is projected to continue declining to 9.2 percent of GDP.

“The PREFU shows New Zealand remains resilient in the face of challenging conditions thanks to the Government’s economic plan. We are striking a balance between supporting New Zealanders with cost of living pressures and investing in strong public services and a resilient infrastructure network while carefully managing our resources to ensure the long term sustainability of the economy.

“New Zealanders have the opportunity to build on the hard-earned gains of recent years with a balanced economic plan that will deliver high wages and greater economic security as we transition to a low emissions future. This is not the time to put that at risk with dubious tax promises that will fuel inflation and deep cuts in the public services that New Zealanders rely on,” Grant Robertson said.