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Alternative Scenarios

The following scenarios show how the economy might evolve if some of the key judgements in the main forecast are altered. They illustrate two of the many ways that the economy may deviate from the main forecast. Scenario One illustrates the economic impacts of net migration inflows continuing at their present level. In this scenario, faster population growth raises economy-wide demand but capacity constraints, particularly in the construction sector, impede the overall pace of GDP growth and add to inflationary pressures. Faster real GDP growth and higher inflation leads to increases in nominal GDP, tax revenue and the fiscal surplus, which reduces net debt. Scenario Two shows how growth might slow if households choose to reduce the amount of debt they hold. In this scenario, increased household saving leads to weaker domestic demand, a higher unemployment rate and lower inflation. As a consequence, nominal GDP growth is weaker and the fiscal position not as strong.

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