Economy can grow faster than thought before inflation bites   16 Dec 2014

Article - BusinessDesk

Economy can grow faster than thought before inflation bites, says Treasury

By Pattrick Smellie

Dec. 16 (BusinessDesk) - Economic growth is expected to average a historically high annual rate of 2.8 percent over the next five years, although growth will peak in the year to March 2015 at a slightly lower level than was forecast in the budget in May, the government’s half year economic and fiscal update says.

Lower than expected inflation means the nominal value of economic activity will be lower, reducing forecast government tax revenues and removing the forecast budget surplus for the year to June 2015.

But it also means the annual average potential growth rate while keeping inflation stable has been raised to 2.4 percent in the current financial year, peaking at 2.9 percent in mid-2016, before falling back to 2.3 percent by the end of the forecast period, in 2019.

Forecast growth in the next three March years are 3.5 percent, 3.4 percent and 2.8 percent respectively, before the impact of possible tax cuts that today’s Budget Policy Statement signalled will be in prospect in the election year budget in 2017. By March 2019, annual economic growth is expected to have fallen back to 2.2 percent.

“New Zealand is performing pretty well in a world that remains uncertain,” said Finance Minister Bill English in a briefing to media accompanying the publication of the HYEFU and BPS at the Treasury.

Unemployment is forecast to continue falling from 6 percent in the year to March 2014 to 5.4 percent by next March and 4.5 percent in March 2019. Labour force participation rates remain elevated compared to other developed economies at around 68.8 percent, despite strong ongoing net inward migration that is seen peaking in the year to March 2015 at a net 52,400 new arrivals.

The Treasury forecasts assume a considerably stronger New Zealand dollar than forecasts in the Reserve Bank of New Zealand’s monetary policy statement last week, with the trade-weighted index forecast at 76.6 in March 2017, compared with the RBNZ’s forecast of 73.6.

It sees some increase in interest rates to a 90 day bill rate of 4.4 percent in March 2017, roughly the same as the 4.5 percent forecast from the central bank.

“Recent unexpected falls in oil prices (are) expected to lower tradable inflation,” the HYEFU economic commentary says.

While nominal wages are forecast to grow faster than inflation at 2.8 percent a year for the next two years, the forecasts assume a slight fall in average hours worked per week from 33.5 to 33.2 hours while annual labour productivity is forecast to grow by 1.3 percent annually.

With lower export receipts, especially from dairy products, the domestic consumption and new business investment are expected to be a larger contributor to the growth outlook than previously expected.

Growth in construction activity starts to ease from the 17 percent growth seen in the year to March this year to 15.3 percent, 12.2 percent and 4.5 percent over the years to March 2015, 2016 and 2017 respectively.

House price inflation is presumed to have peaked in the year to March 2014 and is forecast at 4.5 percent and 3.9 percent over the next two years. The consumers price index is forecast to sit at or about the 2 percent annual target rate in 2016 and 2017.

The balance of payments deficit is affected by the lower track for export receipts, rising from 2.7 percent of gross domestic product in the March 2014 year to peak at 6.2 percent in March 2016, before falling back to 5.9 percent of GDP by March 2019. If, however, the terms of trade prove to be weaker for longer than forecast, the Treasury forecasts a scenario where the current account could blow out to close to 8 percent of GDP over the next two years.

(BusinessDesk)

Add a comment

News

Hilary Timmins' Award-Winning UK Documentary Series To Inspire NZ Students

29 Jun 2020 Education
Dream Catchers, produced and directed by Hilary Timmins, celebrates the success stories of more than thirty inspirational New... more

New Zealand reaffirms support for Flight MH17 judicial process

7 Mar 2020 News By Rt HON WINSTON PETERS
Ahead of the start of the criminal trial in the Netherlands on 9 March, Foreign Minister Winston Peters has reaffirmed the need to... more

Business

NZ Government's Economic package to fight COVID-19

17 Mar 2020 Business News By RT HON JACINDA ARDERN
The Coalition Government has launched the most significant peace-time economic plan in modern New Zealand history to cushion the... more

NZ Government announces aviation relief package

19 Mar 2020 Business News By Hon Phil Twyford
Transport Minister Phil Twyford today outlined the first tranche of the $600 million aviation sector relief package announced earlier... more

Living

Diversity was Key at New Zealand Trade Tasting in London

6 Jun 2022 Food & Wine
New Zealand Winegrowers Annual Trade Tasting was recently held in London, on Wednesday 4 May, in Lindley Hall. It was the first... more

Kiwi author stuns Behind the Butterfly Gate

12 Jan 2022 Arts By Charlotte Everett
Hidden behind the Butterfly Gate is where the secret has been kept for 76 years...  New Zealand writer Merryn Corcoran’s... more

Property

Fairer rules for tenants and landlords

17 Nov 2019 Property By Minister Kris Faafoi
17 NOVEMBER 2019 The Government has delivered on its promise to the over one million New Zealanders who now rent to make it fairer... more

New Zealand Government will not implement a Capital Gains Tax

17 Apr 2019 Property By RT HON JACINDA ARDERN
The Coalition Government will not proceed with the Tax Working Group’s recommendation for a capital gains tax, Jacinda Ardern... more

Migration

Boosting border security with electronic travel authority – now over 500,000 issued

19 Nov 2019 Migration By Hon Iain Lees-Galloway
19 NOVEMBER 2019 We’ve improved border security with the NZeTA, New Zealand Electronic Travel Authority, which helps us to... more

Christchurch reinstated as refugee settlement location

18 Aug 2018 Migration
18 AUGUST 2018 HON IAIN LEES-GALLOWAY The announcement that Christchurch can once again be a settlement location for refugees... more

Travel

Gallipoli Anzac Day services cancelled

19 Mar 2020 Travel & Tourism By RT HON JACINDA ARDERN
The New Zealand and Australian Governments have announced this year’s joint Anzac Day services at Gallipoli will be cancelled... more

New Zealanders advised not to travel overseas

19 Mar 2020 Travel & Tourism
New Zealanders advised not to travel overseas more

Sport

The Skipper's Diary: Sir Richard Hadlee honouring his father and NZ's Forty-Niners

27 Oct 2019 Cricket By Charlotte Everett
NZNewsUK London Editor Charlotte Everett spoke to Sir Richard Hadlee about why he’s chosen to publish his father’s... more

PREVIEW: All Blacks v England semi-final

26 Oct 2019 Rugby
The two most convincing quarterfinals winners are set to square off in a semifinal showdown for the ages when the All Blacks meet old... more

Columns

Gordon Campbell on the Gareth Morgan crusade

11 Nov 2016 Opinion
Gordon Campbell on the Gareth Morgan crusade First published on Werewolf The ghastly likes of Marine Le Pen in France and Geert ... more

Gordon Campbell on the US election outcome

10 Nov 2016 Opinion
Column - Gordon Campbell   Gordon Campbell on the US election outcome Well um.. on the bright side, there (probably)... more

Kiwi Success

Congratulations to Loder Cup winner

26 Sep 2018 People By Hon Eugenie Sage
25 SEPTEMBER 2018 The Loder Cup, one of New Zealand’s oldest conservation awards, has been awarded to Robert McGowan for 2018... more

Appointments to New Zealand National Commission for UNESCO

16 Aug 2018 Appointments
16 AUGUST 2018Appointments to New Zealand National Commission for UNESCO HON JENNY SALESA Associate Education Minister Jenny Salesa is... more

Recruitment

Historic pay equity settlement for education support workers

14 Aug 2018 Recruitment By RT HON JACINDA ARDERN
14 AUGUST 2018Historic pay equity settlement for education support workers RT HON JACINDA ARDERN HON CHRIS HIPKINS Prime Minister The... more

Historic pay equity settlement for education support workers

22 Aug 2018 Recruitment By RT HON JACINDA ARDERN
14 AUGUST 2018Historic pay equity settlement for education support workers RT HON JACINDA ARDERN HON CHRIS HIPKINS Prime Minister The... more