Real GDP growth is projected to ease to 1% in 2023 and 1.2% in 2024. Private consumption is set to weaken due to lower employment growth and rising mortgage-servicing costs. Higher interest rates and declining house prices will weigh on investment. Unemployment is expected to increase throughout the projection period, on the back of weaker activity growth. The slowdown in demand, increasing spare capacity and stabilising energy prices should gradually reduce inflation through 2023-24.
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The New Zealand economy recovered quickly from the COVID-19 shock thanks to effective virus containment, measures to protect jobs and incomes and highly expansionary macroeconomic policies but is now overheating and house prices have soared. The Reserve Bank has begun to tighten monetary and macroprudential policies with a view to achieving its price and ﬁnancial stability objectives. Together with policy measures to increase housing supply, this should help moderate housing price inﬂation. While the ﬁscal deﬁcit has begun to fall from the highs reached during the ﬁrst wave of the COVID-19 shock, additional consolidation measures will be needed to put public ﬁnances on a sustainable path, including an increase in the pension eligibility age.
The economy recovered strongly, supported by large policy stimulus and an effective response to COVID-19, but some sectors hardest hit by border restrictions, notably tourism, lag behind. The pandemic highlighted a number of structural challenges. A key priority is to address the deteriorating access to affordable housing, which weakens financial resilience, hampers labour mobility and reduces inclusiveness.
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