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Budget 2010 Home Page Budget Economic and Fiscal Update 2010

Finalisation Dates and Assumptions for the Forecasts

Economic and fiscal forecasts - finalisation dates
Economic forecasts 16 April
Tax revenue forecasts 23 April
Fiscal forecasts 4 May
Text finalised 11 May

Economic Forecast Assumptions

Policy - The tax reform package in Budget 2010 has a significant impact on the economy over the forecast period. Details of this impact are in a separate box on pages 68 to 70. Of other policy changes, the Emissions Trading Scheme (ETS) is assumed to raise the Consumers Price Index (CPI) by about 0.4% in the June 2011 year as the ETS impacts on the price of stationary energy (eg, coal, gas and geothermal) and fuel prices, with a further impact of about 0.4% in the 2013 calendar year as the transition phase ends. A further impact on the CPI is expected from higher ACC levies on motorists estimated at 0.1% in the September 2010 quarter.

Trading partner growth - The global outlook has continued to be revised upwards. After an estimated contraction of 0.9% in 2009, the economies of New Zealand's top-12 trading partners are expected to grow 3.7% in each of 2010 and 2011 before averaging 3.5% per annum in the final three years of the forecast period. These are slightly higher in the near term than growth rates in Consensus Forecasts forApril 2010.

Global inflation and interest rates - Inflation declined dramatically in 2009 from the previous year in most economies. The outlook is for global inflation to rise as the recovery in the world economy progresses. In this inflation environment, interest rates are expected to be gradually normalised over the forecast period.

Oil prices - The average price of West Texas Intermediate (WTI) oil on a quarterly basis rose to US$79/barrel in the March 2010 quarter. Based on the average futures prices for WTI oil in early April 2010, the price of oil is assumed to rise to around US$91/barrel by the end of the forecast period. At this point, the oil price assumption is approximately 5% above that assumed in the Half Year Update.

Figure 1.12 - WTI oil prices
Figure 1.12 - WTI oil prices.
Sources: Datastream, the Treasury

Terms of trade - The merchandise terms of trade, as measured in the System of National Accounts (SNA), are estimated to rise over the forecast period to be around 10% higher in the June 2014 quarter than in the December 2009 quarter. This is around 2% higher than in the Half Year Update 2009.

Monetary conditions - The New Zealand dollar exchange rate is assumed to remain at its March 2010 quarter level of 65.3 on the Trade Weighted Index (TWI) throughout 2010. The TWI is then assumed to depreciate gradually from early 2011 to 53.2 at the end of the forecast period. Ninety-day interest rates are expected to rise to 3.3% in the September quarter of 2010 and 4.8% a year later and continue to increase to 5.8% by the end of the forecast period.

External migration - The net inflow of permanent and long-term migrants is assumed to decrease to 10,000 per annum by early 2012, down from 21,000 in the year to March 2010.

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