The Treasury has released its latest economic and fiscal forecasts in the 2020 Half Year Economic and Fiscal Update.

While New Zealand's economy contracted in 2020, it is forecast to rebound strongly in 2021 outperforming regions we compare ourselves to, like the Euro Zone, the United Kingdom and Japan.

Finance Minister Grant Robertson says the Government's decision to act quickly in response to the global COVID-19 pandemic has contributed to a better than expected economic recovery.

'Global economic activity is expected to continue to recover over the rest of the forecast period, although the pace of recovery is likely to be uneven as countries contend with renewed virus outbreaks and the resulting containment measures.

'Of course the pandemic is not the only risk to the global outlook. Ongoing trade and geopolitical tensions, in particular tensions between China and the United States, have the capacity to affect growth and lead to higher levels of volatility.”

The employment outlook has also improved, with a much lower forecast peak in unemployment and a faster recovery in labour force participation.

'In line with the stronger domestic recovery, the unemployment rate is forecast to peak at 6.9 per cent by the end of 2021, compared to 7.8 per cent forecast in the Pre-Election Economic and Fiscal Update (PREFU).

'Core Crown tax revenue is forecast to be $16.8 billion higher over the forecast period compared to PREFU.

'PAYE revenue is expected to be higher the forecast period, mainly because of a stronger outlook for employment and wage growth. GST forecasts are up partly due to strengthening consumer confidence,” says Robertson.

Operating balance before gains and losses deficits have reduced in all years across the forecast period when compared to the PREFU. The deficit for the 2020/21 fiscal year is expected to be lower by $10.1 billion.

Looking through the fiscal impact of the Reserve Bank's Funding for Lending, the total residual cash deficit and net core Crown debt indicators would both improve by $5.8 billion.

As a percentage of GDP, net core Crown debt would peak at 45.6 per cent in 2023/24 (one year later than without the FLP assets) and remain steady dropping to 45.5 per cent in 2024/25.

The Budget Policy Statement will be released in the New Year.