New Zealand: 2024 Article IV Consultation-Press Release; and Staff Report
IMF Staff Country Reports, May 14, 2024
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Bibliographic details
- Published: May 14, 2024
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9798400275227.002
Economic outlook
- Economic activity has slowed following monetary policy tightening and a decline in investment.
- Growth is expected to remain slow at 1 percent y/y in 2024 before picking up in 2025.
- The lagged impact of monetary policy tightening is suppressing domestic demand.
- Improving external conditions should help narrow the trade deficit, especially through tourism.
Fiscal and monetary policy assessment
- Budget 2024 should deliver a tight fiscal stance in the near term and provide a comprehensive consolidation strategy for the medium term.
- Monetary policy is appropriately tight and should remain restrictive to ensure a timely return of inflation to target.
Structural reforms and housing
- Structural reforms are needed to:
- boost the housing supply,
- revive productivity growth,
- lower emissions, and
- address challenges from climate change.
- Ongoing housing affordability challenges cannot be solved without a significant increase in residential construction.
- Policy levers discussed to increase efficient land use include reforming land use restrictions, addressing local infrastructure funding needs, and using land value and capital gains taxes to incentivize more efficient land use.
Key risks and external conditions
- The trade deficit is expected to narrow as external conditions improve, with tourism cited as a key channel.
- The primary domestic downside risk highlighted is the persistence of weak domestic demand driven by the lagged effects of monetary tightening and low investment.
Policy recommendations (summary)
- Maintain a tight fiscal stance in the near term and set out a medium-term consolidation strategy in Budget 2024.
- Keep monetary policy restrictive until inflation is on a timely path back to target.
- Implement structural reforms to:
- substantially increase residential construction,
- reform land use restrictions,
- address local infrastructure funding constraints, and
- consider land value and capital gains taxes to promote efficient land use.
Source: New Zealand: 2024 Article IV Consultation-Press Release; and Staff Report (May 14, 2024).
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