Treasury slashes its GDP forecast
The Treasury has taken a knife to its forecasts for economic growth over the next few years, in anticipation of rising interest rates, and is now predicting unemployment will climb to 4.8% in 2025.
In December, the Treasury had been predicting annual GDP, the main measure of economic activity, would be 12.2% higher in the year ending June 2026 than in the year ending June this year.
But in its Budget update, it is now forecasting annual GDP will grow by only 9.3% over that fouryear period.
The Treasury said it still expected strong economic growth of 4.2% in the year ahead, supported by the reopening of New Zealand to international travel and ‘‘robust investment’’. But it then expects GDP growth to fall off sharply as domestic demand slows.
The Treasury is forecasting house prices will fall ‘‘throughout 2022 and 2023’’.
Its new forecast for 4.8% unemployment in June 2025 put that a whole percentage point higher than in its December forecast, but the Treasury said it expected the labour market would ‘‘remain tight’’ in the near term, with rising wages expected to outstrip falling inflation next year.
It is forecasting annual inflation will be 5.2% in the year to June next year, before dropping to 3.6% the following year and back within the Reserve Bank’s target band of below 3% the year after that.
Finance Minister Grant Robertson had previously revealed that the new forecasts would show the Treasury did not now expect the Government’s own accounts to return to surplus until the year ending June 2025, a year later than it had previously forecast.
The Budget figures show the Treasury is expecting an operating (Obegal) deficit of $2.6 billion that year, instead of a $2.1b surplus.
Stubborn inflation will result in higher than previously forecast tax revenues, with the Treasury upping its forecast of the total tax take over the four years to June 2026 by $11.3b.
But that will be outstripped by a much larger $23.4b forecast increase in total government spending in that four-year period.
The result is that net core Crown debt is now expected to peak higher and later, at 41.2% of GDP in the year to June 2024, instead of peaking at 40.1% of GDP in the year before.