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Half Year Economic and Fiscal Update 2012

Executive Summary

  • Economic growth is forecast to increase to 2.3% and 2.9% in the years ending March 2013 and 2014 respectively. Growth is expected to ease to 2.4% in the later forecast years - down from 3.0% in the Budget Update.
  • The Canterbury rebuild is one of the main drivers of the forecast pick-up in activity over the next two years, although its scale and timing remain key uncertainties.
  • Forecast trading partner growth is slower than in the Budget Update, but it is still expected to pick up across the forecast period.
  • Household and business spending growth is expected to pick up moderately as their financial positions improve, although compared with the past decade they are assumed to remain relatively cautious.
  • Monetary policy support for the economy is forecast to continue for some time. As activity accelerates and inflation pressures pick up, interest rates are expected to rise gradually. The exchange rate is likely to be a drag on growth over much of the forecast period.
  • The operating balance before gains and losses (OBEGAL) is forecast to move from its current deficit position to surplus in the year ending June 2015, with tax revenue expected to grow at a faster rate than expenditure.
  • A weaker economic outlook has resulted in lower tax revenue across the forecast period compared with the Budget Update. However, lower inflation and interest rate forecasts lead to lower welfare and finance expenses, partially offsetting the reduction in revenue.
  • Over the next four years the Crown is expected to spend around $17 billion on capital items such as the purchase of physical assets and student loan advances.
  • Net core Crown debt is forecast to peak at 29.5% of GDP in 2014/15 and 2015/16. Projections show debt declining thereafter, albeit more slowly than in the Budget Update.
  • Net worth attributable to the Crown begins to increase by the end of the forecast period, but remains below its level prior to the global financial crisis.
  • The Half Year Update contains two alternative scenarios to illustrate some of the risks to the main forecasts. While growth is higher in the upside scenario, OBEGAL returns to surplus in the same year as in the main forecasts. In the downside scenario, lower growth means that OBEGAL remains in deficit over the period ending June 2017.
Table 1 - Summary of the Treasury's main economic and fiscal forecasts

Economic (March years, %)

Economic growth1 1.6 2.3 2.9 2.5 2.4 2.4
Unemployment rate2 6.7 6.9 6.2 5.9 5.6 5.1
CPI inflation3 1.6 1.5 1.9 2.2 2.2 2.2
Current account balance4 -4.5 -5.1 -4.6 -5.5 -6.2 -6.5

Fiscal (June years, % of GDP)

Operating balance5 -4.4 -3.4 -0.9 0.0 0.6 0.8
Net debt6 24.3 27.8 29.2 29.5 29.5 29.3
Net worth attributable to the Crown 28.5 26.1 24.7 24.6 25.1 25.9


  1. Real production GDP, annual average percentage change
  2. Percent of labour force, March quarter, seasonally adjusted
  3. Consumers Price Index (CPI), annual percentage change
  4. Percent of GDP
  5. Total Crown operating balance before gains and losses (OBEGAL)
  6. 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 19 November
Economic data 19 November
Tax revenue forecasts 22 November
Fiscal forecasts 26 November
Specific fiscal risks 26 November
Text finalised 10 December

Important Notice

The economic numbers and forecasts in the Economic Outlook chapter pre-date the release of annual national accounts data for the March 2012 year by Statistics New Zealand on 21 November 2012. These new data incorporated revisions and measurement changes which resulted in nominal GDP for the March 2012 year being revised higher by $3.6 billion (1.7%). The revised data will be fully incorporated into the Economic Outlook chapter of the 2013 Budget Update.

To reflect best practice, however, the revised nominal GDP data have been used in the calculation of the fiscal ratios to GDP throughout the Fiscal Outlook chapter. The higher denominator has the marginal impact of reducing the fiscal ratios, with an impact on core Crown net debt of 0.5% of GDP in the 2012 fiscal year.

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