The Treasury has used its best professional judgement in preparing and supplying the Minister of Finance with this economic and fiscal update. The update incorporates the fiscal and economic implications of both government decisions and other circumstances as at 8 May 2019 that were communicated by the Minister of Finance, in accordance with the requirements of the Public Finance Act 1989 and of other economic and fiscal information available to the Treasury as at 8 May 2019.
- The pace of economic growth eased back to trend over the six months to December 2018, reflecting slowing population growth together with subdued growth in business investment. This contributed to the economy growing at a slightly slower rate of 2.8% in the year to December 2018 than the 3.1% growth recorded in 2017.
- Recent economic data point to a continuation of current quarterly growth rates, resulting in annual growth of 2.4% in the year to June 2019. Growth in the economy over the initial year of the forecast horizon continues to be supported by migration-led population growth, government spending, accommodative monetary policy and solid (although slower than recent years) growth abroad.
- Increased government spending and stronger investment see real gross domestic product (GDP) growth reach 3.0% in the year ended June 2020. Growth then eases to 2.4% over the latter part of the forecast period, as the fiscal stimulus from the increased government spending fades, net migration growth eases and interest rates increase.
- The economy continues to operate near full capacity, with the unemployment rate at low levels, and labour force participation rates at historic high levels. The unemployment rate falls to 4.0% in the year ending June 2020 before rising slightly over the remainder of the forecast period to reach 4.3% in 2023. This continued tightness in the labour market supports an acceleration in wage growth, which in turn provides impetus for household spending.