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NZ economy in 'steady' growth phase

NZ Newswire logoNZ Newswire 25/05/2017

Treasury forecasts paint a rosy picture for the New Zealand economy over the next four years, but it will slow down towards the end of that period.

"Overall our economy is growing steadily," Treasury says in papers supporting the government's 2017 budget, released on Thursday.

Real GDP growth of 3 per cent was expected to rise to 3.8 per cent in 2019, helped by immigration, low interest rates, exports and the Kaikoura earthquake rebuild.

The Family Incomes package, worth $2 billion each year, was also predicted to increase household spending.

However, GDP growth is tipped to slow to 2.4 per cent in 2021 as interest rates rise and spare capacity in the economy is used up.

The unemployment rate is tipped to drop from its current 5 per cent to 4.25 per cent by 2021, which will help drive up wages.

New Zealand's "small, open economy" meant growth was particularly affected by changes in migration, goods and services, which could turn around quickly.

It is highly dependent on exports and Treasury was worried about political events in the US and Europe, where with the election of President Donald Trump and Brexit there had been weakening support for trade liberalisation.

Nevertheless, the growing economy means the government's tax take is expected improve, rising $19.5b over five years to reach nearly $90b in 2020-21.

Core Crown spending, or the day-to-day expenses of running a government, is expected to rise from $73.9b last year to $89.2b in 2020-21.

The government's slim operating surplus this year is expected to increase to $7.2b by 2020-21 and that will be used on capital projects and to restart payments to the Superannuation Fund.

The government's net debt of $62.8b is expected to stay steady, which means as a percentage of GDP it will have dropped from around 44 per cent to 19.3 per cent.

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