NZ economy growing

building, tape measure, measurement, growth, construction, toolsNew Zealand’s economic growth will slow over the next four years but the unemployment rate is expected to drop below five per cent for the first time since the global financial crisis.

The government is happy the economy will continue to grow and paints it as an average of 2.8 per cent, but unusually low inflation means it cannot tap into that growth and take correspondingly more tax.

Figures released by Treasury on Thursday as part of budget forecasts show New Zealand’s growth in its $230 billion GDP is predicted to rise to 3.3 per cent this year (2.5 per cent in 2014) but then taper off to 2.4 per cent in 2019.

The growth is based on increased migration growing the workforce and stronger retail trade.

The Christchurch earthquake rebuild is also contributing between one and 1.5 per cent of the GDP growth.

Treasury is also assuming prices for New Zealand’s biggest export earner, dairy, will recover from current lows, although not to the heady days of 2013 to 2014.

The lower dairy price is part of the reason GDP growth is expected to slow.

The unemployment rate hit a low of 3.7 per cent in 2007. Last year it hit 6.1 per cent but is expected to drop to 4.5 per cent in four years, when the average wage is expected to have risen $7000 to $63,000.

That is a positive story, Treasury said.

But the low inflation rate of 0.1 per cent is unusual in the context of solid economic growth.

While it is good news for people with mortgages and businesses wanting to invest, it also means government’s forecast tax revenue for 2015 to 2016 of nearly $75 billion will be $4.5 billion lower than last year.

This will continue for three years. This means the government’s books, $684 million in the red for 2014 to 2015, will only show a surplus of $276 million in 2015 to 2016.

Finance Minister Bill English admitted low dairy prices are a headwind to growth, and that there are still global economic uncertainties.

“The economy has risen from deep recession to solid, three per cent growth,” he said.

“New Zealand has come through significant challenges and is now a more confident and resilient country than it was seven years ago.”

Treasury noted inflation is expected to rise to 2.1 per cent in 2019.

The economic forecast for the next five years is as follows: GDP growth of  3.3 per cent in 2015, 3.1 per cent in 2016, 2.8 per cent in 2017, 2.8 per cent in 2018, and 2.4 per cent in 2019; unemployment at 5.6 per cent, 5.1 per cent, 4.7 per cent, 4.5 per cent and 4.5 per cent for the next five consecutive years; and inflation at 0.2 per cent, 1.4 per cent, 2.1 per cent, 2 per cent and 2.1 per cent for the next five consecutive years.

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