The Treasury

Global Navigation

Personal tools

Treasury
Publication

Half Year Economic and Fiscal Update 2014

Risks and Scenarios

Overview

  • This chapter outlines the main economic and fiscal risks associated with the central forecast. Risks to the economic outlook are balanced over the forecast period as a whole, but are tilted to the downside in the near term. The first part of this chapter outlines the key risks to the economic outlook. The second part of the chapter presents two alternative scenarios for the economy. The remainder of the chapter focuses on general fiscal risks that can impact the Crown's fiscal position.
  • Domestically, the risks and uncertainties with potentially the largest impact on the New Zealand economy relate to the outlook for inflation and potential output (the maximum level of economic activity that can be achieved while maintaining stable inflation), net migration’s impact on domestic demand, pressures in the housing market and the pace of the Canterbury rebuild and its interaction with the wider economy.
  • Internationally, the risks with potentially the largest impact on the New Zealand economy relate to the level of demand and price for New Zealand's commodity exports (particularly dairy), economic weakness in key trading partners, the timing and magnitude of interest rate increases in the US and the sensitivity of energy prices to geopolitical developments.
  • Two scenarios are presented that represent possible ways in which the New Zealand economy could deviate from the central forecast. Scenario one is based on a sustained fall in the terms of trade and faster depreciation of the NZ dollar, which lowers real and nominal GDP over the forecast period. Scenario two is based on potential output growing faster than in the main forecast, increasing real and nominal GDP over the forecast period.
Page top