New Zealand's Economic Outlook

By Lucy Craymer and Alasdair Pal

WELLINGTON (Reuters) – On Tuesday, New Zealand's Treasury reported rising unemployment, slower economic recovery, and a weaker balance sheet. The government now projects it cannot achieve a surplus within its five-year forecast period.

Finance Minister Nicola Willis, at the release of the Half Year Economic and Fiscal Update, stated, "The Crown's financial position has deteriorated over the past six years". This was just over a year after the conservative government took office.

Willis remarked that changes in Treasury's forecast assumptions indicate that the challenges ahead are more significant than a year ago, emphasizing the need for the government's cost-saving measures.

Since the centre-right coalition government assumed power last October, economic conditions have worsened with rising unemployment and tax revenues falling short of expectations. Treasury anticipates a 0.1% economic contraction in the third quarter but forecasts growth in the fourth quarter and into 2025.

On Tuesday, New Zealand projected a budget deficit of NZ$17.31 billion ($10.02 billion) for the fiscal year ending June 30, 2025, wider than the NZ$13.37 billion deficit expected in May. It no longer anticipates a return to surplus within the five-year fiscal period ending June 2029, having previously expected a surplus by June 2028.

A new reporting measure was introduced, excluding the government-owned accident health provider, under which the government would return to surplus by the year ending June 2029.

Net debt is predicted to peak at 46.5% of gross domestic product in the year ending 2027, two years later than previously forecasted. The National Party, led by Prime Minister Christopher Luxon, has proposed austerity measures, including significant cuts to public servant numbers and reduced public service budgets.

However, tax cuts were introduced effective July 31. "I am confident that there are still more savings to be found," Willis said.