The International Monetary Fund’s latest projections for New Zealand’s economy make for grim reading, with Aotearoa expected to have weak growth, high inflation and rising unemployment over the coming two years.
The outlook globally is gloomy, with the IMF on Wednesday forecasting growth to fall from 3.4 percent in 2022 to 2.8 percent in 2023 before then settling at 3 percent in 2024. A more pronounced slowdown is projected across advanced economies.
Global headline inflation is expected to fall from 8.7 percent last year to 7 percent in 2023, but core inflation is expected to decline more slowly. The IMF warns inflation is unlikely to return to target bands in most cases until 2025.
“Tentative signs in early 2023 that the world economy could achieve a soft landing – with inflation coming down and growth steady – have receded amid stubbornly high inflation and recent financial sector turmoil,” the IMF said, noting the continued impacts of Russia’s invasion of Ukraine.
It said governments should aim for “an overall tight stance” while at the same time “providing targeted support to those struggling most with the cost-of-living crisis”.
For New Zealand specifically, the IMF is projecting the real gross domestic product (GDP) rate to be 1.1 percent in 2023, down from 2.4 percent in 2022. In 2024, it’s projected to be 0.8 percent. This is a downgrade from October last year, when the IMF forecast New Zealand’s GDP to be 1.9 percent in 2023.
The projection of 1.1 percent GDP growth in 2023 is the weakest of all advanced Asian economies that New Zealand is compared to. The average for the region is expected to be 1.8 percent.
With regard to consumer price changes, the IMF is expecting New Zealand to have an annual average rate of 5.5 percent in 2023 and 2.6 percent in 2024. That’s down from 7.2 percent in 2022. Only Singapore and Australia are expected to have higher average rates in 2023 than New Zealand within the region.
Unemployment in New Zealand is expected to lift from 3.3 percent in 2022 to 4.3 percent in 2023 and 5.3 percent in 2024. The 2023 figure is the highest among advanced Asian economies.
The latest GDP figures released by StatsNZ last month showed the New Zealand economy shrunk 0.6 percent in the fourth quarter of 2022, with manufacturing the largest contributor to the decline.
“A fall in transport equipment, machinery, and equipment manufacturing corresponded to lower investment in plant, machinery and equipment; while reduced output in food, beverage and tobacco manufacturing was reflected in a drop in dairy and meat exports,” StatsNZ said.
At the time, Finance Minister Grant Robertson noted New Zealand’s economy had grown strongly in the two quarters prior.
“While GDP is likely to move around a bit as we continue to recover from COVID, our economy is nearly 6.7 percent bigger than before the start of the pandemic, ahead of most countries we compare ourselves with,” Robertson said.
He said 2023 “was always going to be a challenging year”, with the global economy still “volatile” and recovering from COVID-19 impacts.
“This result shows the strength of the economy in this challenging environment. We are well-positioned to support New Zealanders dealing with cost of living and the impact of flooding and cyclones with near record low unemployment, rising tourist numbers and the Government’s books in solid shape.”