The NSW economy is facing headwinds but remains resilient. Household consumption and a strong labour market have supported stronger-than-expected growth.
Economic outlook – a resilient NSW economy
Since the 2022-23 Budget, the NSW economy has grown faster than expected despite global headwinds, high inflation and rising interest rates. Households have continued to spend, aided by robust employment and solid savings buffers.
The labour market remains strong with the participation rate close to record highs and the unemployment rate around its lowest level in nearly 50 years. New South Wales’ female participation rate reached its highest monthly rate on record at 62.3 per cent in November 2022. The NSW Government continues to support opportunities to boost women’s labour force participation through initiatives introduced in the 2022-23 Budget’s Women’s Opportunity Statement.
Inflation is expected to ease in 2023 as commodity prices moderate, supply chain pressures resolve and household spending slows. The implementation of the National Energy Price Relief Plan is expected to put downward pressure on rising energy bills, further helping to constrain inflationary pressures.
Economic growth is expected to slow in 2023-24, in part due to the impact of higher interest rates and cost pressures on households and businesses. However, the strong labour market and large build-up of net household savings over the course of the pandemic is anticipated to underpin continued growth, albeit at more moderate rates.
Fiscal outlook – on track for a return to surplus despite near term pressures
NSW economic growth outcomes since the 2022-23 Budget have been stronger than expected. The resilient economy is supporting State revenues. Revenues (including GST) are forecast to increase by $11.1 billion over the four years to 2025-26.
The State’s fiscal position continues to be impacted by floods and the effects of COVID-19. Since the 2022-23 Budget, the NSW and Australian governments have jointly provided an additional $2.6 billion to support those impacted by flooding, deliver the Resilient Homes Fund, repair flood-damaged local roads and implement recommendations of the 2022 NSW Independent Flood Inquiry.
The NSW Government has also made additional investments in the health system to support the transition to living with COVID-19. These measures, alongside additional expenditure on cost-of-living support and priority reforms, have increased expenditure and placed pressure on the State’s operating position, particularly in 2023-24.
These increased expenses have flowed through to the budget result, with the 2022-23 deficit deteriorating slightly to $11.4 billion, and the deficit in 2023-24 deteriorating by $3.7 billion to $6.5 billion. Nevertheless, the State remains on track to return to a surplus in 2024-25 ($333 million) and 2025-26 ($1.2 billion), ensuring the NSW Government rebuilds its fiscal buffer and moves towards a sustainable operating position.
The State’s infrastructure program is projected to rise to a record $116.6 billion over the four years to 2025-26, an increase of $3.9 billion, driven by investments in new and existing transport infrastructure.
