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Budget 2012 Home Page Budget Economic and Fiscal Update 2012

Executive Summary

  • Economic growth is forecast to increase to 2.6% and 3.4% in the years ending March 2013 and 2014 respectively. Thereafter, the pace of growth is sustained at around 3%.
  • Trading partner growth is expected to be a little below trend in 2012 and to be a little above trend in 2013 and to gradually strengthen thereafter.
  • Households' caution in spending and investment decisions is expected to continue and is reflected in a rising household saving rate.
  • Earthquake-related rebuilding of damage to property, contents and infrastructure of $20 billion (10% of annual gross domestic product [GDP]) in 2011 prices will provide a substantial addition to economic activity. The scale and timing of the rebuild remain key uncertainties.
  • The economy is operating with a moderate degree of spare capacity, which is helping to restrain inflation at present. Fiscal and monetary policy support for the economy will be progressively withdrawn as activity accelerates.
  • Operating deficits are forecast to narrow over the next two years and to return to surplus in the year ending June 2015. This strengthening fiscal outlook is underpinned by higher revenues, together with restrained expenditure growth.
  • Over the next four years the Crown is expected to spend around $18 billion on capital items such as the purchase of physical assets and student loan advances.
  • Net core Crown debt is forecast to peak at 28.7% of GDP in the year ending June 2014 and to fall to 27.7% of GDP in the year ending June 2016.
  • Growth in Crown liabilities, led by borrowings, exceeds growth in assets over the year ending June 2013, leading to a fall in net worth attributable to the Crown. Net worth rises gradually thereafter, although it continues to decline relative to GDP until the year ending June 2015.
  • There are upside and downside risks to these economic and fiscal forecasts, in contrast to the Pre-election Update when downside risks were dominant, although the balance of risks is still to the downside.
  • The balance of risks is illustrated in two alternative scenarios around the main forecasts. While growth is higher in the upside scenario, the operating balance returns to surplus in the same year as in the main forecasts. In the downside scenario, lower growth means the operating balance remains in deficit over the period ending June 2016.
Table 1 - Summary of the Treasury's main economic and fiscal forecasts

Economic (March years, %)

Economic growth1 1.2 1.6 2.6 3.4 3.1 2.9
Unemployment rate2 6.6 6.3 5.7 5.2 5.0 4.7
CPI inflation3 4.5 1.6 2.6 2.5 2.4 2.4

Fiscal (June years, % of GDP)

Operating balance4 -9.2 -4.1 -3.6 -0.9 0.1 0.8
Net debt5 20.0 25.0 28.1 28.7 28.6 27.7
Net worth attributable to the Crown 40.2 33.7 29.6 28.1 27.9 28.6


  1. Real production GDP, annual average percentage change
  2. Percent of labour force, March quarter, seasonally adjusted. March 2012 actual was 6.7%
  3. Consumers price index (CPI), annual percentage change, actual 2012
  4. Total Crown operating balance before gains and losses (OBEGAL)
  5. Net core Crown debt excluding the New Zealand Superannuation Fund and advances

Sources: Statistics New Zealand, the Treasury

Finalisation Dates for the Update

Economic forecasts 27 April
Economic data 27 April
Tax revenue forecasts 27 April
Fiscal forecasts 8 May
Specific fiscal risks 8 May
Text finalised 15 May

Important Notice

The economic and fiscal numbers and forecasts in this document pre-date the release of revised GDP data by Statistics New Zealand on 15 May 2012. These new GDP data incorporated a new industry classification and other updates and resulted in changes to the level of economic activity in recent years. Although historical numbers will change, we do not expect any direct impact from these new data on our economic and fiscal forecasts. In this document, all references are to the previous GDP data unless otherwise specified. The new data will be fully incorporated into the Half Year Update 2012.

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