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Upside Scenario

In response to weakness in their economies, a number of countries have responded with aggressive easing of monetary policy and fiscal packages aimed at supporting key financial institutions and/or stimulating demand. The economic response to these measures is the subject of considerable uncertainty. If world economies prove more responsive to the collective impact of these measures than is implicitly assumed in the main forecasts, then it is possible that there may be stronger growth over the 2009 calendar year flowing through to New Zealand.

Table 13 - Key economic features of the upside scenario
(Annual average % change,
Year ending 31 March)
Real GDP components:
Private consumption 3.3 0.0 0.5 1.0 1.9 2.4
Residential investment 3.8 -21.5 -10.7 16.2 18.5 9.8
Market investment 7.4 7.2 -12.4 4.2 2.6 4.5
Gross national expenditure 4.5 0.4 -1.1 2.9 3.1 3.4
Exports of goods and services 2.3 -1.0 -0.4 3.5 6.2 5.0
Imports of goods and services 9.7 3.2 -7.1 1.0 3.3 4.3
GDP (production measure) 3.2 0.3 1.3 3.6 3.9 3.6
Unemployment rate1 3.7 4.7 5.7 5.3 4.6 4.1
90-day bank bill rate2 8.8 5.5 5.5 6.4 6.4 6.6
TWI2 71.9 56.5 57.6 57.0 55.6 54.3
CPI3 3.4 3.4 2.1 2.2 2.4 2.3
Current account balance (% GDP) -8.0 -9.2 -7.4 -5.4 -5.0 -5.1
Nominal GDP level (deviation from main forecast, $billion) 0.0 0.0 1.2 3.5 4.4 4.8

Sources: Statistics New Zealand, Reserve Bank of New Zealand, the Treasury


  • 1 Percentage of labour force, March quarter, seasonally adjusted.
  • 2 Average for March quarter.
  • 3 Annual percentage change, March quarter.

A relatively stronger world economy and some recovery in asset prices…

In this scenario, a stronger response by world economies to the various fiscal and monetary policy initiatives would result in stronger growth in our trading partners, with confidence and credit availability concerns easing more rapidly. New Zealand's top 20 trading partners are assumed to grow 1.8% in 2009 and 3.0% in 2010, this compares to the 1.2% and 2.4% assumed in the main forecast. Stronger growth could see asset prices in equity markets

recover more rapidly, which would result in positive wealth effects relative to the main forecast, particularly if house prices were also to show a more pronounced recovery in light of increased confidence.

…would contribute to higher exports…

A faster recovery in the world economy would help promote higher export growth relative to the main forecast. This would be partially offset by a higher exchange rate, which could occur if risk aversion were to moderate.

…and stronger investment

With firms and households more positive about the future and an environment of reduced financial market turmoil, market investment would prove stronger than in the main forecast over the 2010 and 2011 years. More rapid recovery in house prices would feed through into renewed housing sector confidence with residential investment higher than in the main forecast.

Private consumption would also be higher…

Lower unemployment, which under this scenario would not reach 6%, and increased confidence, would see private consumption grow stronger than the main forecast from the 2010 March year.

…contributing to $14 billion more nominal GDP over 2010 to 2013

Stronger demand would contribute to higher inflation than in the main forecast over most of the forecast period with the exception of the March 2010 year when the higher exchange rate would see inflation lower. Higher prices, combined with real GDP growth that would be an estimated 0.5% and 0.7% higher in the 2010 and 2011 March years respectively, would contribute to nominal GDP being a cumulative $14 billion higher than the main forecast over the 2010 to 2013 March years.

Figure 14 - Gross debt
Figure 14 - Gross debt.
Source: The Treasury

Stronger tax revenue would strengthen the fiscal position

Higher levels of nominal GDP would contribute to higher tax revenue of a cumulative $6.4 billion over the forecast period. Core Crown expenses would be $0.5 billion lower owing to lower benefit expenses and lower debt servicing leading to a lower OBEGAL deficit relative to the main forecast. By June 2013 this would mean that GSID would be an estimated 4% of GDP lower than in the main forecast, at 28.5%.

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