AUCKLAND: New Zealand’s government is talking up the economic outlook as it approaches its first year in office, saying falling interest rates and financial discipline will revive demand next year.

“Lower interest rates mean families get to keep more of their money and they increase the opportunities for businesses to invest, innovate and expand,” Finance Minister Nicola Willis told a finance sector conference here yesterday.

Since the new government was formed in November last year, Willis has battled against a structural budget deficit and anaemic economic growth.

But the Reserve Bank began cutting interest rates in August, boosting optimism among firms and consumers.

“The green shoots of business confidence are re-emerging,” Willis said.

“I share your optimism.”

The Reserve Bank last week cut the official cash rate (OCR) by 50 basis points following a 25-point reduction in August.

Most economists are forecasting a further 50-point move in late November.

Last week’s cut “was a welcome fillip for businesses and households”, Willis said.

She expects consumers will soon benefit from those lower borrowing costs, noting that roughly half of New Zealand’s mortgage lending is either floating or fixed for a period of six months or less.

“That means the impact of a lower OCR will flow through to households much faster than might typically be the case,” the Finance Minister added.

“And the impact will be significant.”

Willis is looking to revive growth after the economy stalled the past two years under the weight of tight monetary policy and a high cost of living.

Gross domestic product shrank 0.2% in the three months through June and many economists project it contracted again in the third quarter.

An economic recovery will revive government tax revenue and help Willis to get the government’s books back in the black.

The Treasury Department last week reported a wider-than-forecast deficit in the year through June, casting doubt on the government’s plan to return the budget to surplus by 2028.

Willis reiterated she expects to achieve that target, and said an ongoing process of reprioritisation of budget spending will allow her to deliver essential public services and targeted new policy. 

 - Bloomberg