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Half Year Economic and Fiscal Update 2015

Risk and Scenarios

  • The central forecast discussed above involves several key judgements on the risks and uncertainties facing the New Zealand economy. The Risks and Scenarios chapter presents two alternative scenarios to show how the economy might evolve if some of these judgements are altered (Figure 5).
Figure 5 - OBEGAL scenarios
Figure 5 - OBEGAL scenarios    .
Source:  The Treasury
  • In Scenario One, three key judgements are changed relative to the central forecast - productivity growth is softer, demand is less responsive to monetary policy and the historical relationship between inflation and spare capacity takes longer to re-assert itself. This leads nominal GDP to be a cumulative $26 billion lower than the central forecast. The fiscal position shows larger operating deficits owing to lower nominal GDP impacting tax revenues, and the net core Crown debt to GDP ratio is higher throughout the forecast period compared with the central forecast.
  • Scenario Two assumes that global dairy prices recover faster, international demand is more sensitive to the low New Zealand dollar and there are an additional 11,000 net migrants over the next year. This leads to an earlier recovery in the terms of trade, and stronger growth in services exports, private consumption and investment. Inflation is also slightly higher and interest rates rise three quarters earlier. Nominal GDP is higher than in the central forecast by a cumulative $15 billion. Overall, higher nominal GDP and interest rates lead to increased tax revenues, and an OBEGAL surplus in 2015/16 and higher surpluses thereafter relative to the central forecast.
Table 1 - Summary of the Treasury's main economic and fiscal forecasts
Economic (March years, %)
Real GDP growth1 3.2 2.1 2.4 3.6 3.0 2.2
Unemployment rate2 5.8 6.5 6.1 5.3 4.7 4.5
CPI inflation3 0.3 1.4 2.1 1.9 2.1 2.2
Current account balance4 -3.5 -4.8 -6.0 -4.5 -3.9 -4.3
Fiscal (June years, % of GDP)
Total Crown OBEGAL5 0.2 -0.2 0.1 0.4 1.2 1.7
Net core Crown debt6 25.2 26.9 27.7 27.1 25.6 24.0
Net worth attributable to the Crown 35.9 35.5 35.2 34.3 34.9 36.2


  1. Real production GDP, annual average percentage change.
  2. Percent of labour force, March quarter, seasonally adjusted.
  3. CPI, annual percentage change, March quarter.
  4. Annual balances as % of GDP.
  5. Total Crown operating balance before gains and losses (OBEGAL).
  6. Net core Crown debt excluding the New Zealand Superannuation Fund (NZS Fund) and advances.

Sources: Statistics New Zealand, the Treasury

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