Treasury’s Chief Economist Dominick Stephens has issued a stark warning regarding New Zealand’s economic outlook, indicating that a delay in the anticipated return to growth is likely.
“The Treasury has been revising down its assessment of future economic activity at successive updates,” Stephens told during the Chartered Accountants Australia and New Zealand (CAANZ) Annual Tax Conference in Wellington.
“The key reason is accumulating evidence of a sustained productivity slowdown. Productivity is the key to economic growth, so as evidence of the productivity slowdown has emerged, the Treasury has steadily revised down its forecast for future economic activity.”
“New Zealand is not alone. Productivity growth began slowing in New Zealand and around the world before the global financial crisis and has fallen even further in the last decade. Last week the Reserve Bank of Australia cited flagging productivity as a cause of forecast revisions across the ditch.”
“Treasury’s May Budget forecasts anticipated a return to economic growth in the second half of 2024, but the latest data now suggests that the recovery will begin later.”
Stephens did not provide specific details regarding the revisions, which are expected to be included in its Half-Year Economic and Fiscal Update on December 17.
The May Budget had projected a growth rate of 1.7% for the year ending June 2025, but most private sector economists are now predicting growth closer to 1%.
Stephens also indicated that the government’s financial outlook has worsened, and forecasts regarding the magnitude and duration of budget deficits may be subject to revision.
“New Zealand is currently running a structural fiscal deficit, with expenditure exceeding revenue. Economic growth falling short of expectations has been making it harder for the government to bring the books back into balance. “