Economic Outlook
Mr Speaker,
The Government has four priorities this term:
- responsibly managing its finances;
- building a more productive and competitive economy;
- delivering better public services; and
- supporting the rebuilding of Christchurch.
Across our programme, we are working constructively with the ACT, United Future and Māori parties, and I want to acknowledge their support and assistance.
I intend to talk about each of the Government's four priorities in turn. But first I want to summarise the economic outlook for the next few years.
The Budget forecasts show annual growth of between 2 and 3 per cent over the next four years.
These forecasts include the impact of the recent drought, which is expected to reduce economic activity by 0.7 percentage points in 2013.
Low interest rates, increased activity resulting from the Canterbury rebuild, and strong commodity export prices will all contribute to growth. And across the Asia Pacific region, growing numbers of consumers will be demanding the goods and services New Zealand produces.
The New Zealand economy is expected to grow more strongly over the next two years than many other developed economies, including the United States, Canada, the United Kingdom, Japan, and the Euro area.
Budget forecasts also show an improved outlook for jobs and for wage growth. As a result, household disposable income is forecast to rise by almost 20 per cent over the next four years.
The current account deficit is forecast to rise gradually to over 6 per cent of GDP in the next few years, driven by stronger investment by businesses and households, including investment in the Canterbury rebuild. If investment in the rebuild is excluded, the current account deficit remains below 5 per cent of GDP.
New Zealand's net offshore liabilities will worsen slightly as insurance pay-outs for Canterbury continue. However, national saving is expected to rise, led by the Government getting its finances in order. Household saving rates are expected to retain the gains made over recent years, following the large dissaving over much of the 2000s.
In summary, New Zealand is well placed.
However, a number of risks and challenges remain. The recent drought, for example, may have a more persistent effect than expected, and rapid house price growth, if sustained, may place more pressure on the domestic economy.
Internationally, risks for the global economy appear to have receded over recent months, although global conditions continue to place upward pressure on the New Zealand dollar.
Budget decisions have been made with this economic context in mind.
