The International Monetary Fund (IMF) has released its concluding statement on the New Zealand economy following an Article IV mission. This mission is part of the IMF's regular consultations to assess member countries' economic health and policy measures.
According to the IMF staff, "The New Zealand economy faltered in 2024 amid tight financial conditions, as inflation successfully returned to target and the current account deficit narrowed." The report highlights a contraction in real GDP by 0.5 percent year-on-year due to a significant drop in investment. Despite personal income tax cuts aimed at supporting consumer demand, household spending declined with falling real disposable income per capita for a second consecutive year.
The report also notes that while high debt service costs and a slowing economy have led to an increase in non-performing loans, banks remain well-capitalized. "Housing sales volumes are picking up gradually, and prices have stabilized roughly 25 percent above pre-pandemic levels; housing affordability is improving as nominal incomes rise," it states.
Looking ahead, the IMF projects economic growth will recover as monetary policy eases and price pressures stay contained. Growth is expected to rebound to 1.4 percent year-on-year in 2025 and further accelerate to 2.7 percent in 2026. The report suggests that over the medium term, migration will drive economic growth while productivity remains modest without structural reforms.
On fiscal policy, the IMF advises balancing medium-term consolidation with near-term support for the economy: "While this contributes to a delay in restoring an operating surplus, the government’s policy statement for Budget 2025 appropriately affirms its commitment to necessary medium-term consolidation."
Regarding monetary policy, if inflation remains under control, additional rate cuts may be appropriate: "Shrinking demand and rising unemployment have created a negative output gap," prompting consideration of lowering the Official Cash Rate further.
Finally, enhancing productivity growth is highlighted as essential for long-term economic stability: "Enhancing New Zealand's productivity growth requires a comprehensive approach," including refreshing competition settings and encouraging innovation through various incentives.
The IMF staff concludes by expressing gratitude for discussions with New Zealand authorities and stakeholders across different sectors.