The New Zealand economy recovered quickly from the COVID-19 shock thanks to effective virus containment, measures to protect jobs and incomes and highly expansionary macroeconomic policies but is now overheating and house prices have soared. The Reserve Bank has begun to tighten monetary and macroprudential policies with a view to achieving its price and financial stability objectives. Together with policy measures to increase housing supply, this should help moderate housing price inflation. While the fiscal deficit has begun to fall from the highs reached during the first wave of the COVID-19 shock, additional consolidation measures will be needed to put public finances on a sustainable path, including an increase in the pension eligibility age. New Zealand has considerable scope to boost productivity by fostering growth of its digital sector and stimulating digital innovation. This requires strengthening the domestic pipeline of digital skills, making sure that regulations evolve with technological change and facilitating exports by firms exploiting digital technologies. New Zealand has a solid institutional framework to reduce greenhouse gas emissions but needs to implement additional abatement measures to meet its objectives. The carbon price needs to increase substantially, combined with efficient complementary measures.

SPECIAL FEATURE: BOOSTING PRODUCTIVITY THROUGH DIGITALISATION