New Zealand To Enter Recession In 2023; Budget On Track To Achieve Surplus
The New Zealand economy is likely to enter a recession next year before a slow and gradual recovery in 2024, but the government accounts are on the course to return to surplus by the end of fiscal year 2025, the official estimates revealed on Wednesday.
Despite the worsening economic outlook, tax revenue is projected to be higher than the previous estimate and the budget is expected to move from deficit to surplus over the forecast horizon, the treasury said in its latest twice yearly Economic and Fiscal Update.
Although the precise timing is uncertain, real economic growth is forecast to slow materially through 2023, falling 0.8 percent over the three quarters to end 2023. A slow and gradual recovery is projected for 2024.
“Getting the books back in the black will help to keep a lid on debt and take inflation pressure out of the economy, giving businesses more space to invest,” Finance Minister Grant Robertson said.
The government’s primary focus at next year’s Budget will be on supporting families and households experiencing cost of living pressures, Robertson said.
On Wednesday, the government announced more cost of living support by extending the petrol excise discount until the end of February, before phasing it out by the end of March. Half price public transport will also be extended until the end of March.
These extensions are timed to link up with significant lifts on April 1, 2023 to the Family Tax Credit, Superannuation, benefits, student allowances and increased childcare support, the treasury said.
The treasury estimates showed that the deficit in the operating balance before gains and losses, or OBEGAL, is forecast to shrink further this year and move closer to a balanced position in 2023/24.
The deficit outlook for the year ending June 2023 was lowered sharply to NZ$3.6 billion from NZ$6.6 billion estimated in May.
Similarly, the deficit forecast for 2024 was reduced to NZ$0.5 billion, or 0.1 percent of GDP, from NZ$2.6 billion estimated previously.
Budget is forecast to return to a surplus of NZ$1.7 billion in 2024-25.
Net debt is projected to peak at 21.4 percent of GDP in 2023/24. By the end of the forecast period, net debt is set to fall to 14.1 percent of GDP.
The unemployment rate is forecast to increase through 2023 to a peak of around 5.5 percent in mid-2024, from the near-record low level of 3.3 percent registered in the September quarter of 2022.
The support for Prime Minister Jacinda Ardern and her ruling Labour Party is waning as slowing economic growth, high inflation and rising interest rates put households in distress. New Zealanders are set to go to polls next year.
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