Wellington: New Zealand’s government said the fiscal and economic impact of the coronavirus pandemic will be less severe than first feared as its decision to impose one of the world’s strictest lockdowns pays off.
Economic growth will recover more rapidly while budget deficits and net debt will be much lower than expected just three months ago, Finance Minister Grant Robertson said Wednesday in Wellington when presenting the half-year fiscal and economic update. Unemployment will now peak at 6.9% at the end of next year rather than the 7.8% predicted in September.
“The government’s decision to act quickly in response to the global Covid-19 pandemic has contributed to a better than expected economic recovery,” Robertson said. “While New Zealand’s economy contracted in 2020, it is forecast to rebound strongly in 2021, outperforming regions we compare ourselves to like the euro zone, the United Kingdom and Japan.”
New Zealand’s strategy to eliminate Covid-19 from the community saw it impose a harsh nationwide lockdown that tipped the economy into recession, but its success allowed a relatively quick resumption of normal life. Today, as many countries face new lockdowns, New Zealanders head into the Christmas vacation free of any restrictions.
While gross domestic product plunged a record 12.2% in the second quarter, economists predict it surged by 12.9% in the third, according to a Bloomberg survey. That data is due tomorrow.
The recovery is expected to continue next year, with the Treasury Department forecasting annual average growth of 1.5% in the year through June 2021. Three months ago it forecast a 0.5% contraction.
Budget deficits are now seen falling from NZ$21.6 billion, or 6.7% of GDP next year to NZ$4.2 billion, or 1% of GDP, in 2025. That’s much lower than the deficit track in September’s pre-election fiscal update, which saw a gap of NZ$31.7 billion or 10.5% of GDP in 2021.
Net debt is now seen peaking at 52.6% of GDP in 2023 compared with the previous forecast of 55.3% in 2024. This includes the Reserve Bank’s various alternative monetary policy measures, which Treasury said could be looked through as they should reverse out over time. When the RBNZ’s liabilities are excluded, net debt is forecast at 44.8% of GDP in 2023.
The better outlook has allowed the government to reduce its expected borrowing. The bond program for 2020-21 has been cut by NZ$5 billion to NZ$45 billion, while the following three years have also been reduced by NZ$5 billion to NZ$30 billion each. – Bloomberg
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