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Budget 2015 Home Page Budget Economic and Fiscal Update 2015

Economic Outlook

Overview

  • Economic growth was 3.3% in the year ended December 2014. Growth of over 3.0% is expected in the year ahead, supported by net migration inflows, labour income growth, stimulatory interest rates and construction activity. Drought is likely to have had a small negative impact on GDP growth in the first half of 2015.
  • Real GDP growth is expected to moderate as migration inflows ease, construction growth slows and interest rates rise in response to increasing capacity pressures. Government expenditure growth is forecast to remain subdued, exerting a mild constraining influence on demand in most years of the forecast. The high exchange rate remains a headwind for export growth but households benefit from increased purchasing power.
  • Global oil prices have fallen considerably since the Half Year Update, reflecting ongoing increases in supply and an easing in demand. Lower oil import prices are feeding through to the economy via lower inflation and increased purchasing power, providing a partial offset to the reduced income associated with lower dairy prices. This is reflected in a smaller fall in the terms of trade than was forecast in the Half Year Update.
  • Lower fuel prices, particularly in the March quarter, and an appreciating exchange rate have contributed to lower tradables inflation. Non-tradables inflation has eased as the economy has operated with a degree of spare capacity and non-tradables inflation is expected to remain low in the near term. Looking forward, continued above-trend growth is expected to generate greater upward pressure on non-tradables prices. In addition, tradables inflation is forecast to increase as international oil prices rise and the exchange rate stabilises, causing headline inflation to rise to around 2.0% in late 2016.
  • The weaker domestic price outlook is reflected in a lower level of nominal GDP over the forecast period compared to the Half Year Update. Nominal GDP growth is forecast to be slower in the years ending June 2016 and 2017, but faster in the later years of the forecast period. Over the five-year forecast period, nominal GDP is forecast to be a cumulative $5.0 billion lower compared to the Half Year Update.
Table 1.1 - Economic forecasts1
(Annual average % change,
March years)
2014
Actual
2015
Forecast
2016
Forecast
2017
Forecast
2018
Forecast
2019
Forecast
Private consumption 2.9 3.7 3.9 2.8 2.7 2.8
Public consumption 2.7 3.2 0.9 0.4 2.3 1.9
Total consumption 2.8 3.5 3.2 2.3 2.6 2.6
Residential investment 16.7 13.9 11.9 5.3 6.0 0.2
Market investment 8.3 6.7 5.4 5.1 2.9 2.4
Non-market investment 12.5 -6.4 2.6 2.4 2.4 2.4
Total investment 10.4 7.5 8.1 5.0 3.6 1.8
Stock change2 0.2 0.2 -0.3 0.3 0.2 0.1
Gross national expenditure 4.6 4.6 4.2 3.2 3.1 2.5
Exports 0.2 2.2 0.5 3.5 3.2 3.3
Imports 8.0 7.0 3.5 4.5 4.0 3.3
GDP (expenditure measure) 2.4 3.2 3.3 2.8 2.8 2.4
GDP (production measure) 2.5 3.3 3.1 2.8 2.8 2.4
Real GDP per capita 1.6 1.7 1.3 1.7 1.8 1.5
Nominal GDP (expenditure measure) 6.8 3.9 3.3 5.3 4.8 4.1
GDP deflator 4.2 0.7 0.0 2.4 2.0 1.7
Potential GDP 2.1 2.4 2.5 2.8 2.8 2.6
Output gap (% deviation, March year average)3 -0.9 0.0 0.5 0.6 0.6 0.4
Employment 2.4 3.3 2.3 1.6 1.4 1.2
Unemployment rate4 6.1 5.6 5.1 4.7 4.5 4.5
Participation rate5 69.0 69.2 68.8 68.8 68.8 68.8
Nominal wages6 2.5 2.7 2.5 2.9 3.1 3.3
CPI inflation7 1.5 0.2 1.4 2.1 2.0 2.1
Terms of trade8 13.7 0.2 -2.9 2.9 0.1 -0.4
House prices9 8.0 6.8 5.2 3.0 2.4 2.0
Current account balance            
  $billions -6.0 -9.8 -13.7 -12.8 -13.8 -15.1
  % of GDP -2.6 -4.1 -5.6 -4.9 -5.1 -5.3
Net international investment position            
  % of GDP -65.5 -65.6 -69.1 -70.5 -72.4 -74.8
TWI10 80.0 77.9 77.9 77.9 77.9 77.1
90-day bank bill rate10 3.0 3.6 3.6 3.7 4.3 4.8
10-year bond rate10 4.6 3.3 3.5 4.2 4.8 5.1

Notes:

  1. Forecasts finalised 10 April 2015.
  2. Contribution to GDP growth.
  3. Estimated as the percentage difference between actual real GDP and potential real GDP.
  4. Percent of the labour force, March quarter, seasonally adjusted.
  5. Percent of the working-age population, March quarter, seasonally adjusted.
  6. Quarterly Employment Survey, average ordinary-time hourly earnings, annual percentage change.
  7. Annual percentage change.
  8. System of National Accounts (SNA) and merchandise basis, annual average percentage change.
  9. Quotable Value New Zealand (QVNZ) House Price Index, annual percentage change.
  10. Average for the March quarter. 2015 actual.

Longer time series for these variables are provided on page 138.

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