Treasury Growth Forecasts Largely Unchanged – House Prices Weaker

Corin Dann
Business Editor

Treasury
says while the conflict in the Middle East has delayed the
country’s recovery, it has not been derailed, with the
medium-term outlook for the economy broadly unchanged from
that in May’s Budget.

In the economic
forecast released in the Pre-election Economic Fiscal
update or Prefu, Treasury says annual average growth will
peak at 3 percent by March 2028, down slightly from 3.2
percent in the budget update.

Treasury says stronger
economic momentum than first thought prior to the conflict,
and a strong export sector has helped offset some of the
negative impacts of rising oil prices, including weaker
household consumption.

When it comes to business
investment, increased uncertainty and cost pressure is
expected to dampen activity in the June quarter before
recovering in the later part of the year 2026, in line with
the forecasts in the budget.

Over the forecast period
unemployment is forecast to fall from 5.6 percent to 4.3
percent by 2030, in line with the Budget forecasts, while
inflation is forecast to fall to just below 2 percent in
2027, slightly higher than forecast in the
budget.

Housing
prices are expected to be weaker than forecast with growth
of just 0.6 percent in 2027 compared with 4 percent forecast
in the Budget.

It puts that down to higher interest
rates, growth in housing supply and lower net
migration.

Treasury warns there are risks to the
outlook particularly the uncertainty in the Middle East and
if energy prices remain elevated for longer than assumed
inflation could prove more persistent for longer resulting
in weaker activity.

The forecasts were issued in
mid-August. That means they may not have fully taken into
account the recent pro-longed surge in crude oil prices and
spikes in government borrowing costs
globally.

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