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Budget 2015 Home Page Budget Economic and Fiscal Update 2015

Risks and Scenarios


  • This chapter outlines the main economic and fiscal risks associated with the central forecast. The first part of the chapter outlines the key risks to the economic outlook. The second part of the chapter presents two alternative scenarios for the economy, and the remainder focuses on general fiscal risks. The global risks to the New Zealand economy, primarily around the prices of commodity exports, are tilted to the downside. However, domestic risks, relating chiefly to the size and duration of net inward migration, are skewed to the upside.
  • Internationally, the risks with potentially the largest impact on the New Zealand economy relate to the demand for commodities and global inflation. These include a sharp fall in demand from China, a slower rebalancing into non-mining activity in the Australian economy, the impact of any unwinding of easy US monetary policy on emerging markets and persistent weak inflation in many advanced economies.
  • Domestically, the risks with potentially the largest impact on the New Zealand economy relate to the duration and impact of elevated net migration, the uncertain impact on household spending as a result of the low inflation environment, a nationwide adjustment in house prices, the outlook for the Canterbury rebuild and uncertainty around labour productivity growth later in the forecast.
  • Two scenarios are presented that show possible ways in which the New Zealand economy could deviate from the central forecast. Scenario one is based on lower terms of trade and weaker inflation than in the central forecast, which reduce nominal GDP and tax revenue. An OBEGAL surplus is not achieved until the 2018 fiscal year. Scenario two is based on a larger boost to domestic demand from the low inflation environment, associated with a longer period of elevated net migration. This lifts nominal GDP, tax revenue and the OBEGAL over the forecast period.
  • In addition to the risks associated with the economy, the Crown is also subject to expenditure and balance sheet risks. In particular, volatility in financial asset prices and interest rates can have a significant impact on the Crown's fiscal position.
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