By By Renju Jose
SYDNEY (Reuters) – New Zealand’s Treasury said on Thursday it would likely cut its economic and fiscal forecasts because of a sustained productivity slowdown in the economy.
New Zealand Treasury’s May budget forecasts had anticipated a return to economic growth in the second half of 2024, but the latest data suggests the recovery will begin later, Treasury Chief Economic Adviser Dominick Stephens said in a speech.
“Economic growth has proved slower than anticipated. Weaker economic growth means a smaller economy and less tax revenue, increasing the challenge for the government in balancing its books,” Stephens said at the Chartered Accountants Australia and New Zealand conference in Wellington.
The New Zealand government in October reported a larger-than-expected budget deficit for the 2023-24 year as lower growth hurt government revenue but it vowed to bring discipline to public spending and get the books back in surplus.
Emerging data revealed that productivity had dropped back to pre-pandemic levels in 2024 as indicators of manufacturing and service activity remain contractionary suggesting little growth in the economy in recent months, Stephens said.
The New Zealand Treasury is expected to publish its half-year economic and fiscal update on Dec. 17.
New Zealand’s economy contracted in the second quarter as activity fell in several major industries, leaving room for more cuts in interest rates.
The Reserve Bank of New Zealand cut its benchmark rate in August, the first reduction since March 2020, and followed it up by slashing rates again by 50 basis points to 4.75% in October. It is widely expected to deliver a third straight cut next week.