1 Economic and Fiscal Update
Overview
The world is undergoing its deepest downturn since World War II…
The depth of the current global slowdown and the extent of its synchronisation across countries are unprecedented in the period since World War II. The economic performance of New Zealand's trading partners will play a crucial role in the performance of the New Zealand economy over the next few years. This outlook is highly uncertain, and will be partly dependent on the effectiveness of the numerous large-scale policy responses introduced by governments in response to the financial crisis. A number of the policies undertaken, at least on the current scale, are relatively untested and as such many governments find themselves in uncharted waters.
Uncertainty surrounds how long disruptions in financial markets will continue, as well as the ramifications for world growth. Although not independent, this is complicated by the fact that current adjustments in the world economy are occurring at a time when a number of countries, including New Zealand, have imbalances such as large current account deficits. A number of countries also now face the added complication of significant deteriorations in their fiscal positions and consequential increases in debt. Judgements around such factors have significant impacts on the outlook for an economy. The main forecasts presented here represent the Treasury's view as to the most likely path the New Zealand economy will take over the next several years. Two alternatives are also presented that fall within the range of possible outcomes. Given the considerable uncertainty surrounding forecasts in the current environment, these alternatives represent an integral part of the forecast story.
…with negative implications for the outlook for the New Zealand economy
The weaker outlook for New Zealand's trading partners has resulted in further downward revisions to the forecasts for New Zealand economic activity, with the outlook for the New Zealand economy now weaker than the main track and downside scenario of the December Forecasts. As a result, forecasts of tax revenue are substantially lower, which leads to an increase in the size of forecast fiscal deficits and government debt levels. While some recent data have been less negative, it is too early to tell if this indicates a faster recovery than is incorporated in the main forecasts. An upturn in economic indicators is necessary for quarterly growth to return to positive territory by the end of the year, which is incorporated in the main forecast.
| 2008 Est./Actual |
2009 Forecast | 2010 Forecast |
2011 Forecast |
2012 Forecast |
2013 Forecast |
|
|---|---|---|---|---|---|---|
Nominal expenditure GDP ($billion, March year) |
||||||
| Budget 2008 Forecasts | 178 | 184 | 190 | 199 | 209 | - |
| Pre-election Forecasts | 178 | 183 | 189 | 197 | 208 | 218 |
| December Forecasts | 178 | 180 | 183 | 191 | 202 | 214 |
| Budget 2009 Forecasts | 178 | 179 | 175 | 181 | 189 | 200 |
Real production GDP (AAPC, March year) |
||||||
| Budget 2008 Forecasts | 3.1 | 1.5 | 2.3 | 3.2 | 3.0 | - |
| Pre-election Forecasts | 3.0 | 0.1 | 1.8 | 3.3 | 3.4 | 3.1 |
| December Forecasts | 3.2 | 0.3 | 0.8 | 2.9 | 3.9 | 3.8 |
| Budget 2009 Forecasts | 3.1 | -0.9 | -1.7 | 1.8 | 2.9 | 4.0 |
Unemployment rate (%, March quarter) |
||||||
| Budget 2008 Forecasts | 3.5 | 3.7 | 4.4 | 4.5 | 4.3 | - |
| Pre-election Forecasts | 3.7 | 4.4 | 5.1 | 5.1 | 4.8 | 4.6 |
| December Forecasts | 3.7 | 4.7 | 6.4 | 6.2 | 5.4 | 4.6 |
| Budget 2009 Forecasts | 3.7 | 5.0 | 7.5 | 7.5 | 6.3 | 5.1 |
OBEGAL [1] (% GDP, June year) |
||||||
| Budget 2008 Forecasts | 2.9 | 0.7 | 0.5 | 0.2 | 0.1 | - |
| Pre-election Forecasts | 3.1 | 0.0 | -0.9 | -1.2 | -1.5 | -1.5 |
| December Forecasts | 3.1 | -0.3 | -2.2 | -3.1 | -3.1 | -2.9 |
| Budget 2009 Forecasts | 3.1 | -1.6 | -4.4 | -5.1 | -5.0 | -4.2 |
Gross debt [2] (% GDP, June year) |
||||||
| Budget 2008 Forecasts | 17.6 | 17.5 | 16.8 | 17.8 | 16.8 | - |
| Pre-election Forecasts | 17.4 | 17.4 | 18.0 | 21.9 | 23.1 | 24.3 |
| December Forecasts | 17.5 | 19.2 | 21.0 | 26.0 | 29.4 | 33.1 |
| Budget 2009 Forecasts | 17.5 | 24.8 | 29.1 | 34.2 | 36.9 | 38.7 |
Net debt [3] (% GDP, June year) |
||||||
| Budget 2008 Forecasts | 6.5 | 8.1 | 9.5 | 10.8 | 11.9 | - |
| Pre-election Forecasts | 5.7 | 8.9 | 11.4 | 14.2 | 16.7 | 19.1 |
| December Forecasts | 5.7 | 9.3 | 13.5 | 18.5 | 22.7 | 26.7 |
| Budget 2009 Forecasts | 5.7 | 8.7 | 15.6 | 21.8 | 27.1 | 30.9 |
