Half Year Economic and Fiscal Update 2019
11 December 2019
• The New Zealand economy is experiencing a period of slower, but still solid, economic growth, as household spending
eases and global uncertainty weighs on business investment. This contributed to the economy growing at a slower rate of
2.4% in the year to June 2019, compared to 3.2% growth recorded in the year to June 2018.
• Recent data suggest growth has continued at this slower pace over the second half of 2019. As a result, the forecast
for GDP growth in 2019/20 has been revised down, reflecting the drag from subdued business investment and household
consumption as well as lower services exports.
• Growth is forecast to pick up in 2020/21, supported by monetary and fiscal stimulus.
The Budget Policy Statement 2020 includes an additional $12.0 billion of government capital investment, which
complements other spending measures announced in the Budget Update. Reductions in the Official Cash Rate have largely
flowed through to lower mortgage interest rates, and house prices have picked up. Stronger house price growth is
expected to support an increase in household consumption growth. Economic growth eases towards the end of the forecast
period, as fiscal and monetary support wane and as population growth continues to soften.
• Although growth has slowed, conditions in the labour market remain tight, and this has caused wage and cost pressures
to rise. The unemployment rate is projected to be steady at around 4.2%, while wage growth increases to reach 3.7% at
the end of the forecast period. Past falls in tradable goods prices have helped keep CPI inflation subdued but inflation
is projected to rise gradually to 2.0% in late 2021.
• Global growth has slowed and the outlook has eased. Escalating trade protectionism, and the associated uncertainty,
has weakened global trade and dampened investment spending. Despite this, demand for New Zealand’s major export
commodities has remained firm and prices have increased, although growth in tourism has eased. The lower New Zealand
dollar is providing additional support for export incomes.
• Nominal GDP, the main driver of tax revenue, is forecast to increase 5.1% over the year ahead, supported by improved
terms of trade. Growth averages 5.0% over the forecast period, slightly lower than expected in the Budget Update.
Nominal GDP is lower in each forecast year and, in total, is $5.1 billion lower than in the Budget Update.
• By 2023/24, core Crown tax revenue is forecast to reach $110.5 billion (28.4% of GDP), $24.0 billion higher than
• Core Crown expenditure increases by $22.2 billion, reaching $109.2 billion in 2023/24 (28.1% of GDP). This increase in
expenditure largely reflects previous Budget decisions, and future Budget allowances combined with increases in benefit
• An operating balance before gains and losses deficit of $0.9 billion is forecast in the current year, before returning
to a small surplus in 2020/21 which then grows to reach $5.9 billion (1.5% of GDP) in 2023/24.
• Capital expenditure across the forecast period is $49.9 billion. This includes the Government’s new capital investment
of $12.0 billion, with $8.1 billion included in the forecast and the remaining $3.9 billion forecast to be spent after
• Taking into consideration both the operating and capital activities of the Government, a total cash shortfall of $20.1
billion is forecast. The cash shortfall is mainly funded from additional borrowings.
• Net core Crown debt is forecast to increase by $18.6 billion. As a percentage of GDP, net core Crown debt increases
from 19.0% in 2018/19 to 21.5% of GDP in 2021/22 before falling to 19.6% in 2023/24. Gross debt increases by $18.2
billion over the forecast period to be $102.6 billion in 2023/24 (26.4% of GDP).
• Total borrowings are forecast to increase from $110.2 billion in 2018/19 (36.2% of GDP) to $145.3 billion by the end
of 2023/24 (37.3% of GDP). This increase is owing to issuing additional government bonds to help fund the cash
shortfall, an increase in Kiwibank borrowings (eg, deposits held) and Crown entity borrowings.
Full document: hyefu19.pdf