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Birds Eye View

Autumn 2023

Special feature – GDP and its role in well-being economics

1.0 The Front Pages

As the weather gets colder, so too does New Zealand’s economy, which is in the midst of a necessary, policy-induced slowdown following the strong post-pandemic recovery. In the International Monetary Fund's (IMF) concluding statement following its visit to New Zealand, it commented that "with exemplary management of the pandemic, New Zealand recovered faster than most other advanced economies. This supported activity and, together with generous fiscal and monetary support, resulted in strong investment and private consumption." However, the IMF notes that New Zealand is now paying the price with capacity constraints, exacerbated by restrictions on labour movement due to border closures and disruptions in global supply chains, that saw inflation peak at 7.3 percent in June 2022 before falling to 6.7 percent for the 12 months to March 2023.

Responding to questions at Parliament’s finance and expenditure committee in November 2022, Reserve Bank of New Zealand (RBNZ) governor Adrian Orr accepted commentary that the central bank was deliberately engineering a recession to combat inflation. In its February 2023 Monetary Policy Statement (MPS), the RBNZ stated that it was expecting that this recession would extend over several quarters starting in the middle of 2023. The March quarter GDP results, released on June 15, show that the Reserve Bank has been successful, but the recession has come earlier than expected. The two consecutive quarters of negative GDP growth necessary for a recession have been achieved. A 0.7 percent decline in GDP in the December 2022 quarter has been followed by a 0.1 percent decline in the March 2023 quarter.

The March quarter GDP results support BERL's pessimistic view of New Zealand’s economic performance. Our forecasts, completed before the March GDP announcement, expect GDP growth of just 1.3 percent in the 12 months to June 2023.

Before the announcement that New Zealand was in recession, the Treasury had a brighter outlook for the economy on the Budget Economic and Fiscal Update than they did in December 2022. Treasury was forecasting that the North Island rebuild, tourists returning faster than expected, and less-contractionary government spending would see New Zealand avoid recession. At the time, the Treasury expected GDP to grow by 3.2 percent this financial year. The knowledge that New Zealand is officially in recession is likely to cause a reaction by consumers, now making this unlikely.

In the longer term, the Treasury is forecasting GDP growth to ease to one percent in 2025 before increasing back towards three percent for the remainder of the forecast period to 2027.

Despite a recession, don’t expect interest rates to fall soon

The IMF has warned the government that while "the operating and capital allocations announced in Budget 2023 towards the weather events are necessary, the authorities need to further calibrate the fiscal stance to current economic conditions and limit discretionary easing that adds to inflation."

The RBNZ was one of the first advanced-economy central banks to tighten monetary policy in October 2021, and the official cash rate (OCR) has been raised by 5.25 percentage points to 5.50 percent. The IMF notes that "the rapid tightening of monetary policy is appropriate and is helping lower inflation. However, there is little scope to lower the OCR for a prolonged period."

This is consistent with RBNZ’s view. In its most recent MPS, RBNZ had the current 5.5 percent rate as the OCR peak. However, it anticipates cuts will only be likely in the third quarter of 2024.

The labour force remains tight, but the economic downturn will relieve pressure

Labour market conditions remain extremely tight, with record high labour force participation and historically low unemployment and underemployment rates. This has put upward pressure on wages, particularly in the services and construction sectors. Declining economic activity is assumed to be accompanied by easing labour market conditions. Increasing unemployment combined with the re-opening of borders is expected to increase the supply of labour, limit wage inflation, and ease the pressure on inflation. However, this will increase the pressure on those already struggling with the increased cost of living, who are hoping for relief in the form of a wage increase.

The IMF notes that rising net migration will help to ease labour constraints, potentially resulting in a faster-than-expected return of inflation to the one to three percent target range. Despite recent reports of an increasing number of New Zealanders leaving for Australia, annual net migration is picking up. Provisional estimates for the year ended March 2023 show an annual net migration gain of 65,400 compared with a net loss of 19,300 for the year ended March 2022. The 161,900 migrant arrivals for the March 2023 year are above the long-term average of 119,000 for March years pre-COVID (2002–2019).

Prior to the announcement of the March GDP results, the RBNZ was expecting that the unemployment rate would increase from its current low level to peak at 5.4 percent in December 2024. This was consistent with the Treasury’s forecast for unemployment to increase from 3.7 percent and peak at 5.3 percent in late 2024. The easing of labour market pressures is expected to help inflation fall back within the target range by September 2024.

House prices are stabilising, but more supply is still required
The IMF notes that "housing affordability remains a concern, and efforts to expand supply must continue." Early signs of housing price stability are emerging. Prices are down 16 percent since their November 2021 peak, and house prices have essentially flatlined, according to the REINZ House Price Index, with May being the third consecutive month in which overall prices remained relatively constant.

The IMF is quick to note, however, that the cyclical downturn in prices does not imply that the structural housing shortage has been addressed. They identified a strong need to expand housing supply, including social housing, to improve affordability. The IMF commented that "the recent increase in new housing is welcome, and policy reforms to enable greater supply should continue. Achieving long-term affordability depends critically on freeing up land supply, improving planning and zoning, and fostering infrastructure investment to enable fast-track housing developments and reduce construction costs and delays."

With this in mind, it is concerning to see the RBNZ confirm that higher interest rates, combined with lower house prices and higher construction costs, have made it less attractive for residential developers to build more houses, and that falling consent numbers suggest that residential investment will continue to slow.

The rise and fall of GDP growth is not the be-all and end-all of a nation’s success. Our special feature looks at why GDP became the go-to metric for economic performance and how new measures have developed to change what we prioritise in economic development policy.

2.0 Special feature: GDP and its role in well-being economics

For decades, GDP and its related measures has been synonymous with progress, development, and well-being. In parts of the world, GDP per capita continues to be used as the sole indicator for measuring how well off the residents of a country or region are. Consider this – in 2021, the United States of America (USA) had a GDP per capita of over US$70,000. In comparison, Denmark (US$68,000), Germany (US$51,000), and the “happiest” country in the world, Finland (US$54,000), all ranked lower than the USA. It can be argued that, on average, the citizens of all three of those countries have a better quality of life than those in the USA. 

GDP is still a useful tool, but (mis)using GDP as the sole proxy for well-being paints a misleading picture. In this edition of the BEV, we take a look at the origins of GDP, what it captures, and the growing influence of well-being economics in policymaking.

GDP was designed to fit a specific purpose 

In 1937, the economist Simon Kuznets made a historic presentation to the U.S. Congress. Kuznets presented the paper “National Income, 1929-1932”, published in 1934, which laid the foundations for the modern conceptualisation of GDP as a measure of national income. The catalyst for the development of the measure was the Great Depression in the USA, during which policymakers realised that a reliable measure of economic activity did not yet exist. The national income measure developed by Kuznets aimed to capture economic production by individuals, corporations, and the government. This was intended to allow policymakers to understand how national income changed through the years and how it responded to shocks, such as the stock market collapse of 1929, and what effect their policies were having on the economy. 

In the years that followed GDP estimates were used to show how Western economies would be able to provide supplies for World War II. GDP became the global standard at the Bretton Woods Conference, held in 1944, where the World Bank and the International Monetary Fund (IMF) were also established. Since then, GDP has been used as the core measure of prosperity around the globe. 

The appeal of GDP lies in the fact that it is a single number that carries a lot of weight in terms of what it conveys. It is a good indicator of the size of an economy, economic activity, and is used as a comparator between regions and time periods. But the simplicity that this one metric seems to offer is precisely the reason an increasing number of experts caution against its use as an indicator of well-being.

Kuznets himself was the first to lay out the limitations of the national income measure that he devised. In fact, in the 1934 paper itself, Kuznets stated that “[the groups included in the national income calculations] are far from an exhaustive account of the possible contents and scope of the national income measurement”. For example, the exclusion of unpaid household work was specifically noted from the very beginning, mainly because of a lack of reliable data. In a section dedicated to the uses and abuses of the measurement Kuznets cautioned against oversimplification and noted that the measure, in its proposed form, could not provide an indication of living standards, inequality, and welfare. In his own words “the welfare of a nation can scarcely be inferred from a measurement of national income”.

The rise of well-being economics

There is nothing wrong with the measurement and use of GDP for its intended purpose. However, significant environmental, social, and even cultural harm has arisen from the single-minded pursuit of GDP growth. The argument for pursuing growth with the hope that well-being will follow is inherently misleading. It fails to consider whose well-being is being considered. It is generally those who already benefit from the prevailing socio-economic structures, and may perpetuate existing inequities. It is true that countries which have higher national incomes also happen to perform better, on average, on measures of health, education, and other indicators of human well-being. But we know that correlation does not equal causation. Just because two things happen in tandem, does not mean one directly causes the other. GDP growth may form a part of the very complex picture of well-being, but it is certainly not the sole factor that explains improved well-being for everyone. 

There is a growing realisation that the ultimate goal of maximising wealth and/or income, is to ensure that people have the freedom to live life as they choose, and thus, maximise their own personal well-being. Over recent years, the goal of economic policy is shifting from GDP growth to improved well-being for all. This means improving people’s access to opportunities and outcomes that they themselves value. This approach to well-being and human development, known as the capability approach, was conceived by Nobel Laureate Amartya Sen. The Human Development Index (HDI), developed in 1990, was a new approach to advancing human well-being, and provided an alternative to the norm of solely promoting economic progress. It is anchored in the capability approach. 

Alternative models in practice 

The key to measuring and implementing approaches to improving societal well-being is the quality of a society’s institutions. As defined by Douglass North, in 1990, institutions in the context of development “shape the subjective mental constructs that individuals use to interpret the world around them and make choices”. If they are set up well and looked after, institutions can drive growth in well-being and intergenerational wealth. If they are poorly developed and managed, however, they can also drive economic stagnation and poverty. 

An institution that only measures GDP, for instance, will only focus on improving GDP in its activities. In recent times institutions have been widening their focus from purely monetary measures to targeting the social, cultural, and environmental well-being of society as well. 

A good example of the changing scope of institutions can be seen within local government in Aotearoa New Zealand. Up until May 2019 the Local Government Act 2002 defined the purpose of local government as “to meet the current and future needs of communities for good-quality local infrastructure, local public services, and performance of regulatory functions in a way that is most cost-effective for households and businesses”. Since May 2019, the Act states that the purpose of local government is “to promote the social, economic, environmental, and cultural well-being of communities in the present and for the future.”

While only one line in a hefty act, the implications of this change are significant. Firstly, the previous definition required local authorities to operate within the scope of cost-effectiveness, purely situated within the domain of economic trade-offs. The new definition paints a much broader picture. While many local authorities certainly cared about well-being before the changes, now they are all required to ensure that they are actively promoting the four well-beings as specified in the Act. Finding the appropriate data, and implementing the right policies to further these well-beings, is a more complex undertaking than sourcing good quality infrastructure and services. If a measure does not exist for a well-being, it raises the question as to why not. 

Businesses too, are also using well-being frameworks to monitor their performance. As local and national authorities will prioritise business activities that actively promote well-being, businesses are incentivised to analyse how they are creating value for the four well-beings, and where they could make improvements. This also improves customer perception of the business as well-being impacts are measured and reported against. Many exporting businesses are already planning their road to carbon neutrality. Some have started to use zero-waste packaging, part of their drive to improve environmental well-being, as this is a growing focus of international institutions such as the European Union. 

These approaches offer us new ways of thinking that reflect our changing priorities, and a shift in the outcomes we value as a society. It is important to remember that economics is a social science, and societies are complex. Our behaviours, preferences, and actions can rarely be accurately captured, or predicted, by neat mathematical models. New models and frameworks that offer fresh ways of thinking are a first step in the shift towards imagining a more equitable and sustainable future. Perhaps the world of economic academia may benefit from aligning itself more closely to the reality of our complex and changing world.  

We have to measure it, to be able to track and improve it

As mentioned previously, economics is a social science. There have been questions raised as to whether there is any evidence of well-being economics and, notably, the circular economy, providing successful remedies to societal issues. The problem with answering these questions is pinpointing what constitutes “evidence”. In the case of the physical and natural sciences, for example in medical science, evidence is gathered through strict trials, often double-blinded with placebo treatments, over many years to understand the effects (and potential side-effects) of a treatment. These methods aim to reduce as much external influence and bias as possible. Even across human bodies there are variables at play, such as allergies, intolerances, and undiagnosed conditions, that can skew results.

Social science is even more difficult to measure. Unlike in The Simpsons, a glass dome cannot be put over a region to test if a circular economy “works”. Instead, strategies and policies must be implemented and monitored for their strengths and weaknesses. In many parts of Aotearoa New Zealand, there are already circular economic activities occurring. MyNoke, based in Waikato, processes the by-products of central North Island industries to add value back into regional economies. There is already alignment with Māori approaches to business and circular economy principles.

There is also a growing body of evidence of circular economies developing around the globe. Academic models are useful, however the only way these newer models can be improved is by actively putting them into practice and deepening the pool of available real-world data that can provide evidence on their effectiveness.

This is not to say that GDP should be dismissed. It is useful to measure how productive, by industry, an economy is. From GDP we can learn where money is being made, who is making it, and where this money is being spent. But this is only one outcome. A large number of children continue to live in poverty and the risk of climate change puts the future of some high-GDP producing industries into question. Solely focusing on GDP growth puts the needs of the present before the needs of the future. Measuring and prioritising well-being, and the circular economy, is the first step in aligning the future and the present. The next step is being brave and implementing policies, pilot programmes, and strategies to test what works and what does not. 

3.0 People resources

The bald facts are:

  • Demand for labour is robust for now, with strong growth in employment
  • Record levels of migration are adding to demand-side pressures.

The labour market

The labour market is not showing signs of weakness, with migration providing a substantial boost to supply and demand still robust. In the March 2023 quarter alone, the working age population expanded by 22,000 people (0.5 percent). However, growth in employment (0.8 percent) outpaced this, driven in large part, by strong employment growth for women (1.1 percent). 

In the March 2023 quarter, unemployment remained at a near historical low of 3.4 percent, and the underutilisation rate declined by 0.3 percent to nine percent. The labour force participation rate also reached an all-time high of 72 percent. 

The female labour force participation rate continued to reach new highs; 67.7 percent of all working-age women participated in the labour market. There was no change to the male labour force participation rate. The underemployment and underutilisation rates also fell more strongly for women than men.

Overall, the share of the working age population on a main benefit remained largely unchanged during the year (11 percent). Although, there were some differences by benefit type. The number of people on Jobseeker Support fell by 5.1 percent during the year, but those receiving a Supported Living Payment increased by 5.4 percent. The proportion of working-age people on a main benefit still remains higher than pre-COVID. In March 2019, this proportion was 9.5 percent. 

Wages and salaries continued to increase at a record pace, which was not a surprise given the tight labour market and cost of living pressures. Salary and ordinary time wages increased by 4.3 percent during the year. The local government sector (5.2 percent) saw the biggest growth during this period. There are signs that wage inflation may have peaked; quarterly growth dropped slightly to 0.9 percent from 1.1 percent in the December 2022 quarter. The industry groups where growth in wages was the strongest this quarter included health care and social assistance (2.1 percent), education and training (1.6 percent), and agriculture (1.2 percent).  


Migration is back with a bang. The net gains for the year to March 2023 surpassed 65,000 people. This stands in stark contrast to the net loss of 20,000 people in the year to March 2022. Over 55,000 of these net migration gains occurred over just the past six months, indicating that by the end of the year, annual net migration may surpass the 100,000 mark. 

The largest number of non-NZ citizens arrived on temporary visas such as work, visitor, and student visas. Nearly a third of all arrivals held work visas and 14 percent were on student visas. NZ residents accounted for a further 14 percent of arrivals. Over 88 percent of the flow of net migration was from Asia, particularly India (25.8 percent), the Philippines (24.9 percent), and China (18.2 percent). South Africa (10.4 percent) and Fiji (7.4 percent) rounded out the top five countries. 

The overall impact of migration on the economy is hard to gauge as migrants are part of both the demand and supply sides of the equation. The balance is tilted towards the side of demand as many migrants do not contribute to increasing productive capacity. Migrants who are not of working-age, are students, or other temporary visa holders, increase pressure on the demand for goods and services, such as housing, but do not necessarily participate in increasing their supply. 

Source: Statistics New Zealand

4.0 Capital resources

The bald facts are:

  • Residential building activity drops off despite increased migration
  • There are strong indications that house prices will start to rise again soon.

Investment and building activity

Given the sustained interest rate hikes, it is not surprising that new lending fell by 21 percent in the year to April 2023. The biggest drop was for lending in the housing sector (27 percent), which is the biggest receiver of investment in this country. Apart from higher interest rates, high inflation in the sector is also depressing demand for new activity. In the year to March 2023, residential construction costs were up by 11 percent while non-residential costs were up by nine percent. Changes over the March 2023 quarter for residential (1.4 percent) and non-residential (1.9 percent) building costs indicate continued pressure. Physical asset prices for producers in other industries (apart from housing) have eased quite a bit over the quarter. Overall, growth in prices for capital goods dropped to one percent, down from 2.1 percent in the previous period, the smallest quarterly increase since March 2021. 

Source: Reserve Bank of New Zealand

The number of residential building consents issued for new dwellings dropped by 16.7 percent in the March 2023 quarter. The drop was a result of fewer consents for houses, apartments, and townhouses, flats, and units. The only residential category that continues to see growth is retirement village units. Building activity in the residential construction sector is also declining fast. The cyclone rebuild will not boost activity in the short-term as it will be spread out over the next few years. Demand for new housing from the surge in migration is likely to face off against the higher costs to build. How these dynamics will play out remains to be seen. Judging from past experience, it is unlikely that supply will match growing demand, and a return to increasing house prices may not be far away. 

Source: Statistics New Zealand

5.0 Home base

The bald facts are:

  • Low debt-to-GDP ratio may be a missed opportunity
  • Growing profit margins may be fuelling further inflation.

Government finances

Budget 2023 was unveiled by the Government in May this year. The focus was on limiting inflationary pressure to the economy, while also supporting the recovery from the recent flooding in the upper North Island and supporting households through the cost of living crisis. Budget 2023 was an attempt to balance these competing dynamics. The key takeaways from the budget included extending the 20 hours free Early Childhood Education subsidy to include two-year-olds, half-price public transport for youth, increased wages for bus drivers, removing prescription co-payments, and a small step towards making the tax system fairer. 

Net government debt is expected to peak at 22 percent of GDP in 2024, two percent higher than expected in Budget 2022. It then decreases to 18.4 percent by 2026–27. In comparison, Australia’s debt-to-GDP ratio is at 36 percent, the United Kingdom’s is at 95 percent, and in the United States it is at 96 percent. It is difficult to look back on the last 15 years and wonder why New Zealand did not borrow more at low interest rates, increase our debt-to-GDP ratio, and make significant investments in New Zealand's future to prepare us for the challenges we face today.


As the effects of the Reserve Bank’s rate hikes started to flow through the economy, headline inflation dropped to 6.7 percent in the year to March 2023. However, certain parts of the economy are still facing strong price pressures. Seasonally adjusted prices over the quarter increased strongly for passenger transport services (four percent), food (3.2 percent), hospital services (2.3 percent), and insurance (1.7 percent). Dwelling insurance (4.6 percent), in particular has gone up substantially, and this trend is likely to continue as the effects of climate change become more visible. 

Source: Statistics New Zealand

Changes to business prices can be a useful indicator of the direction of future price changes. This quarter, farmers’ input prices and capital goods prices eased significantly compared to the previous period. Also, it is interesting to note that while prices received by producers fell considerably during the quarter, the same was not true for prices paid by consumers. This may indicate growing margins for middlemen. It is also useful to see in which industries producers had the biggest differences in the prices they received from consumers, and the prices they paid for their inputs. Those in accommodation and food services (10.4 percent), rental and hiring services (8.4 percent), meat product manufacturing (7.5 percent), dairy product manufacturing (six percent), and supermarket, grocery, and food retailing (5.1 percent) had some of the biggest disparities in input and output prices during the year, which could be a sign of growing profit margins in these industries.

Consumer spending

Kiwi consumers are feeling the pinch of high inflation and rising interest rates. Retail sales volumes fell for the second quarter in a row. Volumes fell 1.4 percent in March 2023, following a one percent drop in the December 2022 quarter. High net migration, increased visitors, and stable growth in wages continue to support spending, but the ever increasing costs of debt repayment are starting to weigh on discretionary spending. The biggest drops in sales volumes this quarter were for spending on liquor (12.5 percent), specialised food (9.1 percent), and hardware, building, and garden supplies (6.3 percent).

Source: Statistics New Zealand

We can expect consumer spending to contract further during the year as the effect of interest rate hikes continues to shrink household budgets. Additionally, as the labour market begins to weaken during the year, so will consumer spending on non-essentials.

6.0 Abroad and beyond

The bald facts are:

  • Merchandise exports remain weak as global prices fall, but service exports are bouncing back
  • Global markets are positive, but food prices remain high in many international economies.


The merchandise trade deficit reached a record $16.8 billion in the year to March 2023 ($5 billion during the quarter). Import prices were down 5.4 percent compared to the previous quarter. But the drop in export prices (6.9 percent) surpassed this, leading to a 1.5 percent decline in the terms of trade. Export prices for meat (12.2 percent) and dairy (9.7 percent) showed the biggest declines, reflecting weakening global economic conditions. These two categories make up over 40 percent of our exports, which partly explains the softer gains from exports. 

Strong growth in import volumes, relative to export volumes, was also a key factor contributing to a growing deficit. Export volumes grew by one percent during the quarter, far outpaced by the 6.7 percent growth in import volumes. The driving force for this was a 75 percent increase in the import volumes of petroleum and petroleum products. The Reserve Bank is pessimistic about an improvement in conditions for Aotearoa New Zealand’s exports this year, and expects export growth to remain subdued.

Growth in service exports provided a bright spot for trade. The increase during the March 2023 quarter equalled 23.4 percent, mirroring the trend in overseas arrivals over the last few months. Travel, which includes personal, business, and education related travel, accounted for 16 percent of total exports during the period. Our top three service export destinations were Australia, the United Kingdom (UK), and China. 

Source: Statistics New Zealand

7.0 The World


Inflation in Australia has been consistent with other OECD countries, gradually declining to seven percent in the year ended March 2023.  However, pressure from the high cost of supplies and labour continues to keep the price of services high. The Reserve Bank of Australia (RBA) expects inflation to return to their 2-3 percent target eventually. By the end of 2023 the RBA expects inflation to decline to 4.5 percent, and to reach three percent by the middle of 2025. 

Unfortunately for New Zealanders looking to cross the ditch in the near future, rent inflation is expected to grow over the next year, and the labour market remains extremely tight with 3.5 percent unemployment and relatively low levels of underemployment. House prices have stopped falling at a national level. 

The working age population has increased to pre-pandemic levels, with working holiday and international student arrivals also returning to pre-pandemic levels. Many Australian firms, however, report finding suitable labour a significant constraint on their growth. 

Australian households have not fared particularly well. Slow income growth, high cost of living, and reduced wealth has resulted in the household saving ratio declining below pre-pandemic levels. Consumer sentiment is around the lows observed during the pandemic, with the weakest sentiment shown by households with a mortgage on their home.  


In mid-May, the Reserve Bank of India (RBI) announced they would withdraw the ₹2,000 currency note from circulation, in pursuit of their Clean Note policy. The RBI estimates that the ₹2,000 note is the one most highly used in black markets. 

Headline annual inflation in India has fallen below five percent in April 2023, the lowest it has been since November 2021. Continued economic growth is expected as private consumption increases with improving rural demand. Data analytics, climate change, environmental management technologies, and cybersecurity are expected to be the strongest drivers of job growth. Agriculture technologies, digital platforms, and artificial intelligence are expected to significantly disrupt the Indian labour market. 

In April 2023, India was declared the world’s most populous country with more than 1.4 billion people. More than 40 percent of India’s population is below the age of 15, signalling that 200 million young people will enter India’s labour force over the next 20 years. The RBI expressed the view that India’s population presents an exciting opportunity if this new generation can be met with economic opportunities. This will mean ensuring people have the right skills to be flexible in line with rapidly changing technologies and global demand patterns. 


For the March 2023 year, China exhibited very low annual inflation of 1.2 percent, with food inflation equalling 3.7 percent. Economic growth looked positive for the March 2023 year, with a 4.5 percent increase in GDP, marking the strongest growth in a year. This was partly attributable to a surge in exports. However, this may only indicate a temporary growth period as pent-up demand from China’s COVID-19 containment measures is realised. 

China’s recovery from COVID-19 has been reliant on increased consumption domestically and internationally, which is something that could prove unreliable should a global recession take effect. While the strong performance in the March 2023 year is encouraging, it does not indicate that there is a strong foundation for complete economic recovery. 

The Bank of Japan (BoJ) forecasts that Japan’s economy will recover towards the end of September 2023, as it continues to grow at a pace above its potential growth rate. Towards the end of the 2023 financial year (March 2024), the BoJ expects the pace of economic growth to slow down as it returns to its potential growth rate. 

The increased growth of Japan’s economy can be attributed to the realisation of pent-up demand, which proved to be stronger than past high commodity prices and the slow recovery of other overseas economies. Employment and household income has generally improved, with private consumption increasing moderately. The Japanese government pushed down electricity prices, which contributed to a slowdown in the growth of Japan’s annual CPI to 3.7 percent for the March 2023 year. Developments in the situation involving the Russia-Ukraine conflict continue to pose a risk to Japan’s economy, namely in its influence on the price of commodities and grains. Annual food inflation remains high at almost eight percent as of March 2023. 

As Japan is an importer of the key commodities energy and grain, rises in the prices of these commodities, due to conflict and climate change, present a significant uncertainty to the outlook for Japan’s economy. As these prices rise business profits and real household incomes decrease. 

It was recently announced by the Bank of America that the “bear market is officially over”. The Federal Open Market Committee (FOMC) announced at their June meeting that they would skip a rate hike. However, while it is looking as if a rise in economic activity is on the cards, it may not mean the current period of aggressive monetary tightening by the Federal Reserve (the Fed) is over. While a pause will not slow the economy, the relief in interest rate hikes is likely temporary and could return as early as July 2023. 

Annual inflation was 4.9 percent in April, less than what markets were expecting. The labour market remains tight, with wage growth decreasing and unemployment beginning to rise. All indicators are showing that more interest rate rises are needed to meet the two percent inflation target of the Fed, pause or no pause. 


In May 2023 the Bank of England (BoE) voted to increase their bank rate to 4.5 percent (a 0.25 percentage point increase). The BoE expects the rate to peak at 4.75 percent at the beginning of the March 2024 quarter and arrive at 3.5 percent by the beginning of April 2024. Inflation in the UK was higher than expected in April 2023, with the CPI equalling 10.2 percent, focused primarily on core goods and food prices. The BoE expects inflation to fall sharply in the following months, as wholesale energy prices decrease. Food prices, however, are likely to remain sticky and will reduce at a slower rate than other goods. 

The BoE modelled that the CPI will likely decline to below two percent in two to three years. However, they also note that there are significant uncertainties and risks to their inflation forecasts, particularly around the growth of the wage and price settings in the UK.  
Stronger global growth, lower energy prices, and fiscal support from the UK government indicate that economic growth will be stronger than expected by the BoE in their February forecasts. 

The European Central Bank (ECB) stated in May 2023 that the inflation outlook continues to be too high, for too long. For this reason, the ECB opted to raise interest rates by 25 basis points, in line with the decision of many other central banks. Despite overall headline inflation cooling, underlying price pressures continue to reduce the purchasing power of households. 

The European Area (EA) economy grew by 0.1 percent in the March 2023 quarter. This was driven by lower energy prices, easing of supply networks, and government support for firms and households. Unemployment reached a historical low of 6.5 percent in the same period. Despite these improvements, household consumption remains weak. Overall business and consumer confidence is slowly improving. However, this confidence is constrained by the continuing Russia-Ukraine conflict. The European Commission is due to conclude its legislative proposal for the reform of the EU’s economic governance framework. When this publication is released, it will set the future direction of the European economy. 

The path of global GDP growth

The opening of China’s borders, and a resilient US labour market, supported a stronger than expected performance of the global economy. However, trade remains relatively weak as demand remains focused primarily on services, rather than goods. Overall, growth is appearing positive for most countries, with China leading at 2.2 percent growth in the March 2023 quarter compared to the December 2022 quarter. India closely follows at 1.9 percent. 

8.0 BERL Forecasts

We have simplified the contents of our forecast data tables to focus on a selection of key variables. 

If you would like to obtain forecasts of other variables not shown, please email or phone +64 21 868 190.

We have pencilled in a slight expansion in GDP for the June 2023 year, as migration provides a boost to the economy. As a result of higher interest rates, we expect unemployment to increase. We also see net migration continuing to increase for the rest of this year, after which it will return to its pre-pandemic average levels. 

All % growth rates are annual June years
2021 2022 2023 2024 2025
Actual Actual Forecast Forecast Forecast
GDP (production) 5.3 1 1.3 1.1 1.5
FTE employment growth 2.7 2 2.7 1.9 1.3
Unemployment rate (% of labour force) 4 3.3 3.9 5.5 5.3
Net migration 4,700 11,500 70,000 50,000 50,000
CPI 3.3 7.3 6.5 4.2 2.9
Exports growth -0.2 12.6 10 6.5 6
Imports growth -7.2 38.7 16 5 8
OBEGAL ($ billions) -4.7 -9.7 -7.4 -8.4 -4.7