The International Monetary Fund (IMF) Executive Board has completed its Article IV consultation with New Zealand, as announced on May 26, 2025. The assessment followed discussions held on May 19, focusing on the country's economic conditions and policies.
New Zealand's economy faced challenges in 2024 with a contraction of real GDP by 0.5% year-on-year due to decreased investment and stagnant household consumption. Sectors sensitive to interest rates, such as retail trade, construction, and manufacturing, experienced significant slowdowns. Despite these challenges, the financial sector showed resilience amid rising non-performing loans.
The current account deficit narrowed to 6.2% of GDP thanks to recovering external demand and improved terms of trade. Fiscal consolidation efforts resulted in a primary deficit reduction to 2.4% of GDP for FY2023/24. Inflation was brought back within the Reserve Bank of New Zealand's target range after several quarters above it.
Monetary policy adjustments are anticipated to foster growth, with real GDP projected to increase by 1.4% in 2025 and accelerate further in subsequent years. Structural reforms are being pursued by the government to enhance productivity through foreign investment attraction, competition enhancement, regulatory burden reduction, housing supply acceleration, and infrastructure development.
Risks remain tilted towards potential downside scenarios such as global uncertainty or natural disasters affecting recovery prospects. However, stronger-than-expected monetary policy effects could lead to an upside in growth.
The IMF Executive Directors acknowledged signs of economic recovery and inflation stabilization but emphasized maintaining prudent policies for macroeconomic stability while implementing structural reforms for long-term challenges.
Monetary policy easing was deemed appropriate but should be data-dependent and responsive to changing conditions. Fiscal policy should focus on medium-term consolidation that supports vulnerable groups while enhancing revenue efficiency and incentivizing investments.
Financial stability risks appear contained; however, continued monitoring is advised alongside progress in banking competition improvements and housing affordability measures.
Structural reforms targeting productivity growth were commended along with plans for increased competition and innovation support through overseas financing facilitation and capital market deepening.
The next Article IV Consultation with New Zealand is expected within the usual annual cycle.