New Zealand’s economic woes cast a shadow on its budget
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The New Zealand economy has contracted in three of the last five quarters, and its recovery has been hobbled by tepid consumption and heightened uncertainty about US trade policy and the global economic outlook.
PHOTO: REUTERS
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- New Zealand's economy faces ongoing challenges, with budget deficits projected for the next five years due to slow economic recovery.
- Despite government spending cuts, the deficit forecast for this year is NZ$16.93 billion, and a surplus isn't expected until after 2030.
- GDP growth is predicted to be 1.7% in 2026, with inflation at 2.4%; the government prioritises health, education, and law and order.
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WELLINGTON – New Zealand published on Dec 15 new financial forecasts that show no return to a budget surplus in the next five years, as the effects of a stuttering economy offset the government’s efforts to keep a tight hold on its fiscal purse.
The South Pacific nation’s economy has contracted in three of the last five quarters, and its recovery has been hobbled by tepid consumption and heightened uncertainty about US trade policy and the global economic outlook.
However, the government is hoping that the economy is on the mend, with its third-quarter data due on Dec 18 expected to show growth, and the Treasury is forecasting improved economic growth over the next 18 months.
“With fresh air in its lungs, the economy is picking up,” New Zealand Finance Minister Nicola Willis said at the release of the half-year economic and fiscal update in Wellington. “At the same time, the government continues to take a very disciplined approach to its spending.”
Since coming to power in late 2023, the centre-right government has tightened its purse strings in an effort to cut what it sees as wasteful spending, but critics say the fiscal discipline is undermining the economy at a time of rising external risks.
“Tight control of spending has to continue and it will,” Ms Willis said. She added that health, education, defence, and law and order will be the priorities for any new spending at the budget in May.
The government forecast a budget deficit of NZ$16.93 billion (S$12.6 billion) for the current financial year, wider than the deficit of NZ$15.60 billion at its May budget. It does not expect to return to a surplus over the forecast five-year period if costs for its nationwide accident insurance scheme are included. It forecasts a deficit of NZ$60 million in the 12 months ending June 30, 2030.
“The books forecast a very, very small deficit... but as I say with forecast revisions, I think you would see it returning to surplus,” Ms Willis said.
Gross domestic product (GDP) growth is expected to be 1.7 per cent in the 12 months ending June 30, 2026, down from the forecast growth in May of 2.9 per cent for the same period, but will pick up to 3.4 per cent in the following financial year. For the 2025/2026 period, the government expects inflation to track at 2.4 per cent, higher than the prior forecast of 2.1 per cent.
Net debt, excluding advances, is forecast to peak at 46.9 per cent of GDP in 2027/28. In May, the government expected it to peak at 46.0 per cent of GDP in 2027/28.
Ms Willis said that following recent improved data, the Treasury is now expecting third-quarter GDP growth of 0.9 per cent. REUTERS
