Budget 2020

Budget Policy Statement

Economic Forecasts

The economy grew at 2.4 per cent in the year to June 2019. New Zealand is growing faster than other advanced economies, such as Australia, Canada, Japan, the United Kingdom and the Euro area. In the past year the unemployment rate was the lowest in a decade, and growth in annual hourly earnings was the highest it has been in a decade.

However, New Zealand is a small, open economy and is experiencing the impacts of global headwinds like the US-China trade war, uncertainty around Brexit and geopolitical tensions in places like the Middle East and Hong Kong. The economy is in good shape to counter these headwinds.

In its Half Year Update the Treasury forecasts growth of 2.5 per cent on average across the forecast period. Growth over this period is supported by low interest rates, Government investment and a slight recovery in trading partner growth. These factors help to support household consumption and business investment growth.

The unemployment rate is forecast to remain low and wage growth is expected to remain solid. This is supported by continued strength in the labour market and through the Government's labour market policies. Wages are expected to grow faster than inflation in every year of the forecast period, averaging around 3.5 per cent per year, helping New Zealanders with the cost of living.

Global economic factors, such as heightened trade policy uncertainty, remain a key risk to the forecasts. A greater-than-expected slow down in global growth would impact the New Zealand economy through a range of channels, including reduced demand for exports, commodity price movements, lower confidence and shifts in financial conditions and asset prices. The economy is in a strong position to handle this, with low Government debt and a strong pipeline of investments planned in infrastructure.

Table 2 - Summary of the Treasury's economic forecasts

Table 2 - Summary of the Treasury's economic forecasts
June Years 2019
Real GDP growth (annual
average % change)
2.4 2.2 2.8 2.7 2.5 2.4
Real GDP per capita (annual
average % change)
0.8 0.7 1.4 1.3 1.1 1.1
Unemployment rate
(June quarter)
3.9 4.3 4.2 4.2 4.3 4.3
Consumers Price Index
(annual % change)
1.7 1.9 1.9 2.0 2.0 2.0
Wage growth
(annual % change)
4.4 3.0 3.3 3.6 3.7 3.7
Current account
(% of GDP)
-3.4 -3.2 -3.4 -3.6 -3.7 -3.8

Sources: Stats NZ, the Treasury

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