The authorities broadly agree with the outlook presented in the staff report.
Economic growth in New Zealand has generally been in the range of 3 to 4 percent over the last three years, with key drivers including strong migration inflows, low interest rates and historically-high terms of trade. Employment growth has been strong and labor force participation is near a record-high 71 percent. However, wage and price pressures remain subdued and consumer price inflation is low. Low interest rates and high net inward migration have helped fuel demand for housing, with price-to-income ratios among the highest in the world.
The authorities’ forecasts are for growth to average around 3 percent over the next few years, with the economy operating broadly at, or above, capacity. While some of the recent growth drivers will moderate, a lift in government spending and robust trading-partner growth are expected to provide support to the economy. The pace of employment growth is expected to be more than sufficient to employ new entrants to the labor market, despite high population growth, and unemployment is forecast to decline further towards 4 percent. Growth is expected to add to capacity pressures in the economy, contributing to inflation rising to the target mid-point of 2 percent. The current account deficit is forecast to widen slightly, to around 3 percent of GDP, but consistent with a stable net international investment position. These forecasts are subject to a number of upside and downside risks, with growing trade protectionism an important downside risk.