Washington, DC - May 26, 2025: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with New Zealand on May 19, 2025.
Tight monetary policy has helped bring inflation back to target, but at the expense of growth. Real GDP contracted by 0.5 percent y/y in 2024, as investment fell by 4.1 percent y/y, household consumption stagnated. The slowdown has been particularly pronounced in interest-rate-sensitive sectors including retail trade, construction, and manufacturing. The financial sector remains resilient despite rising non-performing loans. A recovery in external demand and improved terms of trade have helped narrow the current account deficit to 6.2 percent of GDP, though it remains above long-term trends. Despite a challenging economic backdrop, the government delivered modest fiscal consolidation in FY2023/24, with the primary deficit narrowing to 2.4 percent of GDP. Tight monetary policy helped bring inflation within the Reserve Bank of New Zealand (RBNZ)'s 1-3 percent target band in 2024Q3, after 13 consecutive quarters, with headline inflation reaching 2.5 percent y/y in 2025Q1. The RBNZ has thus eased the Official Cash Rate (OCR) several times since August 2024, bringing it closer to the neutral rate.
The return of inflation to target is enabling monetary policy easing and a return to growth. Inflation is forecast to remain within the target band, allowing monetary policy to gradually move to a neutral stance. Real GDP is projected to expand by 1.4 percent y/y in 2025, with monetary policy easing providing a boost to consumption and investment. Growth is expected to accelerate to 2.7 percent y/y in 2026, as the lagged impact of lower interest rates is fully realized. Fiscal policy is expected to continue to balance needed medium-term consolidation with growth considerations. The government’s broad-based structural reform agenda is aimed at boosting medium-term productivity growth, including via reforms to attract foreign investment, enhance competition, reduce regulatory burdens, accelerate housing supply growth, and progress toward closing of the infrastructure gap.
Risks to the outlook are tilted to the downside. Downside risks stem from a softer-than-expected recovery due to elevated global uncertainty and a weak labor market or the occurrence of a natural disaster. Upside risks include a stronger rebound in growth due to faster-than-expected monetary policy transmission. As a small open economy, New Zealand is vulnerable to trade disruptions, geoeconomic fragmentation, or a global economic slowdown.
Executive Board Assessment [2]
Executive Directors agreed with the thrust of the staff appraisal. They welcomed that the economy is showing signs of a nascent recovery and that inflation has returned to the Reserve Bank of New Zealand’s target, after a prolonged period of significant price pressures. Noting the country’s exposure to trade and investment shocks, Directors underscored the importance of maintaining prudent policies to safeguard macroeconomic stability and implementing ambitious structural reforms to address medium‑ and long‑term economic challenges.
Directors commended the role of monetary policy in helping bring inflation back to target. They agreed that the current monetary policy easing is appropriate and should continue until reaching a neutral level, while remaining data‑dependent and responsive to economic conditions. Directors welcomed the expanded macroprudential toolbox and concurred that macroprudential tools should continue to be used to address financial risks that may emerge as policy rates are reduced.
Directors agreed that fiscal policy should focus on growth‑friendly, medium‑term consolidation, while supporting the most vulnerable. They called for comprehensive revenue reforms that enhance efficiency and incentivize long‑term investment. Directors also encouraged the authorities to pursue expenditure reforms, including to the pension system, that are grounded in a cost‑benefit analysis.
Directors agreed that financial stability risks are contained and recommended that household and financial balance sheets continue to be monitored closely. They welcomed progress in key reforms, notably the Depositor Compensation Scheme and the Deposit Takers Act. Directors noted the authorities’ efforts to increase banking competition and emphasized that prudential settings should remain adequately calibrated to guard against financial stability risks. Given housing shortages, they called for improving affordability and expanding housing supply and welcomed the reform efforts around resource management in these areas.
Directors commended ongoing structural reforms to overcome slow productivity growth and boost long‑term growth. They welcomed the authorities’ plans to boost competition and innovation, reduce barriers to overseas financing, and deepen capital markets. Investing in infrastructure and enhancing resilience to natural disasters will also be needed.
It is expected that the next Article IV Consultation with New Zealand will be held on the standard 12‑month cycle.
[1] Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2] At the conclusion of the discussion, the Managing Director, as Chair of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .
Table 1. New Zealand: Main Economic Indicators, 2021-30
(Annual percent change, unless otherwise indicated)
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Est.
Projections
NATIONAL ACCOUNTS
Real GDP (production)
5.7
2.9
1.8
-0.5
1.4
2.7
2.7
2.2
2.2
2.2
Domestic demand
10.0
4.5
-0.8
-0.8
1.8
2.6
2.4
2.1
2.1
2.0
Private consumption
7.9
4.1
1.0
0.2
1.0
3.1
3.0
2.4
2.4
2.3
Public consumption
7.9
5.2
0.8
0.0
0.5
0.5
0.5
0.7
0.8
0.8
Investment
17.2
4.1
-5.4
-4.1
2.4
3.2
2.7
2.3
2.1
2.1
Public
6.2
3.6
10.2
0.5
0.3
2.3
2.5
2.8
2.8
2.8
Private
12.6
4.3
-3.2
-6.5
1.9
3.5
2.7
2.1
1.7
1.8
Private business
14.5
7.3
-2.2
-5.0
2.6
3.5
2.8
2.1
1.6
1.6
Dwelling
8.6
-2.3
-5.6
-10.1
0.0
3.6
2.3
2.4
2.1
2.4
Inventories (contribution to growth, percent)
1.4
0.0
-1.4
0.2
0.2
0.0
0.0
0.0
0.0
0.0
Net exports (contribution to growth, percent)
-4.8
-1.6
2.6
0.3
0.3
-0.1
0.0
0.0
0.0
0.0
Real gross domestic income
5.0
2.3
1.1
0.3
2.9
3.1
2.8
2.4
2.3
2.3
Investment (percent of GDP)
25.0
26.3
24.2
23.1
23.4
23.4
23.3
23.2
23.1
23.1
Public
5.7
5.9
6.5
6.4
6.3
6.2
6.2
6.2
6.2
6.2
Private
19.4
20.4
17.8
16.7
17.1
17.2
17.1
17.0
16.9
16.8
Savings (gross, percent of GDP)
19.0
17.1
17.3
16.9
18.3
18.8
19.0
19.2
19.4
19.6
Public
-3.5
-4.2
-3.5
-4.4
-5.1
-3.9
-2.5
-1.4
-0.4
0.0
Private
22.5
21.3
20.9
21.3
23.4
22.7
21.5
20.6
19.9
19.6
Potential output
1.5
1.9
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
Output gap (percent of potential)
1.8
2.7
2.4
-0.3
-1.1
-0.6
-0.1
0.0
0.0
0.0
LABOR MARKET
Employment
2.2
1.7
3.3
-0.1
0.7
1.5
2.0
1.7
1.3
1.5
Unemployment (percent of labor force, ann. average)
3.8
3.3
3.7
4.7
5.3
5.2
4.7
4.3
4.5
4.4
Wages (nominal percent change)
3.8
6.5
7.0
4.6
4.3
3.9
3.3
3.3
3.0
3.0
PRICES
Terms of trade index (goods and services, % change)
-1.0
-3.1
-3.4
2.9
1.9
1.3
0.5
0.4
0.2
0.1
Consumer prices (avg, % change)
3.9
7.2
5.7
2.9
2.4
2.3
2.2
2.0
2.0
2.0
GDP deflator (avg, % change)
3.0
5.8
5.1
3.6
3.2
2.8
2.2
2.2
2.2
2.1
MACRO-FINANCIAL
Official cash rate (policy rate, percent, avg)
0.3
2.2
5.2
4.7
3.6
3.3
3.3
3.3
3.3
3.3
Credit to the private sector (percent change)
6.1
4.3
0.1
1.6
3.2
5.6
4.5
4.0
3.9
4.0
Interest payments (percent of disposable income)
5.3
6.3
8.5
8.1
7.3
7.2
7.0
6.9
6.9
6.9
Household savings (percent of disposable income)
3.6
3.3
2.7
2.5
2.4
2.3
2.9
3.6
4.4
5.1
Household debt (percent of disposable income)
174
173
168
166
160
160
159
158
157
157
GENERAL GOVERNMENT (percent of GDP) 1/
Revenue
37.6
38.8
37.0
38.7
37.6
37.5
37.5
37.7
37.9
38.0
Expenditure
40.0
43.3
40.9
41.9
43.1
42.3
40.5
39.7
38.8
38.0
Net lending/borrowing
-2.5
-4.4
-3.9
-3.2
-5.5
-4.8
-3.1
-2.0
-0.9
0.0
Operating balance
-0.3
-2.2
-1.7
-0.7
-3.0
-2.5
-0.8
0.1
1.1
1.9
Cyclically adjusted primary balance 2/
-2.8
-4.2
-3.7
-3.4
-3.6
-2.9
-1.4
-0.2
1.1
2.0
Gross debt
46.0
48.6
45.8
48.4
53.2
56.4
59.0
58.8
57.5
55.1
Net debt
10.6
17.0
19.0
19.8
23.5
26.4
28.0
28.6
28.0
26.4
Net worth
94.6
102.0
96.3
94.4
87.1
81.3
77.3
74.8
73.5
73.0
BALANCE OF PAYMENTS
Current account (percent of GDP)
-6.0
-9.2
-6.9
-6.2
-5.1
-4.6
-4.3
-3.9
-3.7
-3.5
Export volume
-2.3
-0.5
11.0
4.1
3.9
3.9
4.1
4.0
4.2
4.2
Import volume
14.5
4.7
-0.4
2.4
2.0
3.5
3.2
3.3
3.4
3.4
Net international investment position (percent of GDP)
-47.9
-52.5
-51.3
-49.4
-52.1
-54.0
-55.8
-57.3
-58.6
-59.6
Gross official reserves (bn US$)
16.4
13.7
14.8
23.2
…
…
…
…
…
…
MEMORANDUM ITEMS
Nominal GDP (bn NZ$)
353
385
413
427
448
472
496
518
540
564
Percent change
9.0
9.2
7.1
3.4
4.9
5.5
4.9
4.4
4.4
4.3
Nominal GDP per capita (US$)
48,845
47,819
48,360
48,448
47,158
49,022
50,472
51,643
53,044
54,378
Real gross national disposable income per capita (NZ$)
54,586
55,293
54,662
53,632
54,724
55,635
56,458
57,044
57,611
58,081
Percent change
3.7
1.3
-1.1
-1.9
2.0
1.7
1.5
1.0
1.0
0.8
Population (million)
5.1
5.1
5.2
5.3
5.4
5.5
5.5
5.6
5.7
5.8
US$/NZ$ (average level)
0.708
0.636
0.614
0.605
…
…
…
…
…
…
Nominal effective exchange rate
109.9
106.5
105.0
104.9
…
…
…
…
…
…
Real effective exchange rate
107.6
105.5
105.7
106.1
…
…
…
…
…
…
Sources: Authorities’ data and IMF staff estimates and projections.
1/ Fiscal year.
2/ In percent of potential GDP.
/Public Release. This material from the originating organization/author(s) might be of the point-in-time nature, and edited for clarity, style and length. Mirage.News does not take institutional positions or sides, and all views, positions, and conclusions expressed herein are solely those of the author(s).View in full here.
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