NZ's economy should grow soon, but so too will our debt
Tuesday, 16 December 2025
Treasury remains hopeful that New Zealand's economy will grow next year, although its official half-year update has downplayed how good those times will be.
The upshot from the Treasury update on Tuesday is that, in the second half of next year, the economy should start winding up a gear.
The downside is that Government debt is set to reach $254 billion in the next five years, and we won't start paying down that debt until around 2030.
Finance Minister Nicola Willis downplayed those bleak economic predictions, which showed debt would grow - and it would take longer to pay off that debt - due to slower economic growth.
“Merry Christmas, everyone,” she said at the end of the Half Year Economy and Fiscal Update briefing.
“2026 is going to be better than 2025. Thank you,” she said.
Recovery on the way, but delayed
Treasury Secretary Iain Rennie told reporters during a briefing for the Government's Half Year Economy and Fiscal Update (HYEFU), that 'our forecasts… delay, in a short term sense, the extent of the recovery'.
That means the Government's top economists are now somewhat less optimistic about the shape of the books in the months ahead. In their May forecasts, Treasury had predicted stronger growth in the 2025/26 year.
Willis said she remained confident that the Government's plan would work, and said this Treasury forecast was locked in before some more positive economic data was released in recent weeks. She and Rennie predicted that the upcoming Treasury GDP update would be better than Treasury predicted in October.
Either way, the Treasury's economists were still predicting some real growth. Its forecast showed growth in real GDP jumping from 1.7% in the 2025/26 year, to 3.4% in the 2026/27 year.
A 3.4% growth rate would represent the strongest economic activity in New Zealand for years. The economy has been flat for the past year, recording GDP results ranging from -1.1% to a measly 0.9% growth.
Blame for this flatline performance has been laid on Donald Trump’s tariffs, on inflation, on an ageing population, on a struggling Chinese economy, and now, Treasury said, on a rocky tourist market.
The official explanation, from Treasury, lamented a 'sharp loss of momentum in the June quarter', due to 'a fall in export volumes'.
'While goods exports are forecast to recover over the second half of 2025, growth in services exports are expected to remain slow as tourist arrival numbers have largely plateaued over 2025,' it said.
The population was also smaller than expected. Rennie pointed out that there were 50,000 fewer people in New Zealand than Stats NZ had originally thought - so that's 50,000 fewer people for the tax base.
With fewer people in New Zealand, and more of those people being older - so working less, and costing the Government more - Treasury said it could be tricky for some industries, especially construction, to recover.
'All else equal, lower potential growth represents a slower growth rate that the economy can sustain without adding to inflationary pressures,' the forecast said.
Debt set to hit a quarter trillion, surplus delayed
On Tuesday, Willis said there was no need to worry about the forecast delay in reaching surplus. Treasury pushed out the forecast surplus to 2028/29.
That is a surplus according to the OBEGALx measure, a new way for the Government to monitor its accounts, which excludes ACC.
'I wouldn't get too wound up in small changes to OBEGALx,' Willis said, during her HYEFU speech.
In the traditional sense, there would be no OBEGAL surplus during the forecast period. For 2030, Treasury forecast a $60 million defect.
She said future Government budgets would continue to have $2.4 billion in new spending each year. For 2026, effectively all of that money has already been committed by promises to the health and defence departments. That means the Government will need to find savings from other areas.