The Treasury

Global Navigation

Personal tools

Treasury
Publication

Half Year Economic and Fiscal Update 2015

Economic Outlook

Overview

  • Economic growth slowed in the first half of 2015 and was lower than anticipated in the Budget Update. Economic growth is expected to remain muted in the near term in response to weak global and domestic demand and lower terms of trade. El Niño weather conditions, coupled with existing price signals, are likely to depress agricultural production and exports in early 2016. The degree of spare capacity in the economy is expected to increase further as growth slows, resulting in higher unemployment and lower non-tradables inflationary pressures. Real GDP growth is forecast to ease to 2.1% in the year to March 2016.
  • Growth is expected to pick up in the second half of 2016 and remain above trend for most of the latter part of the forecast. Exports are expected to recover in response to the recovery in the terms of trade, the weaker dollar and as the agricultural sector recovers from El Niño, with further support from strong travel service exports. Stimulatory monetary policy conditions are expected to support domestic consumption and investment. Increases in the Government's operating and capital allowances increase public consumption and non-market investment respectively. Unemployment falls as spare capacity in the economy declines.
  • Nominal GDP growth is expected to slow in the near term in response to slower real GDP growth and the lower terms of trade. Strong nominal GDP growth in later years, as real GDP growth picks up and the terms of trade increase, does not return nominal GDP to previously forecast levels. For the fiscal years 2014/15 to 2018/19, nominal GDP is forecast to be a cumulative $17 billion lower compared to the Budget Update.
  • Key factors influencing the economic outlook include judgements around trading partner growth, the future path of commodity prices, the impact of El Niño, the extent and duration of the current migration cycle and the relationship between inflation and spare capacity. The risks to these judgements are discussed further in the Risks and Scenarios chapter.
Table 1.1 - Economic forecasts1
(Annual average % change,
March years)
2015
Actual
2016
Forecast
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
Private consumption 3.1 2.7 2.3 2.3 2.5 2.1
Public consumption 2.8 2.7 1.0 1.9 1.9 0.9
Total consumption 3.0 2.7 2.0 2.3 2.3 1.8
Residential investment 12.3 5.9 6.7 4.9 2.8 1.4
Market investment 4.6 3.5 3.4 4.2 6.3 3.3
Non-market investment 2.1 10.7 8.0 3.0 -9.5 -0.8
Total investment 6.5 3.6 4.6 4.4 4.4 2.6
Stock change2 0.1 -0.3 -0.1 0.2 0.2 0.3
Gross national expenditure 3.8 2.8 2.6 2.9 3.0 2.4
Exports 4.2 2.9 0.1 4.3 4.2 2.8
Imports 7.5 4.1 0.7 2.2 4.2 3.2
GDP (expenditure measure) 3.0 2.1 2.4 3.6 3.0 2.2
GDP (production measure) 3.2 2.1 2.4 3.6 3.0 2.2
Real GDP per capita 1.6 0.2 0.7 2.5 2.1 1.3
Nominal GDP (expenditure measure) 3.6 2.7 3.0 6.0 5.6 4.1
GDP deflator 0.6 0.5 0.5 2.3 2.5 1.9
Potential GDP 2.5 2.5 2.6 2.5 2.5 2.4
Output gap (% deviation, March year average)3 -0.4 -0.8 -1.0 0.0 0.5 0.3
Employment 3.4 1.4 1.3 1.9 2.4 1.6
Unemployment rate4 5.8 6.5 6.1 5.3 4.7 4.5
Participation rate5 69.5 68.7 68.5 68.6 69.0 69.0
Nominal wages6 2.1 2.6 1.8 2.2 2.8 3.3
CPI inflation7 0.3 1.4 2.1 1.9 2.1 2.2
Terms of trade8 -0.8 -3.7 -2.2 2.5 2.6 -0.3
House prices9 8.9 16.0 5.4 2.3 2.0 2.0
Current account balance            
  $billions -8.3 -11.8 -15.0 -12.1 -10.9 -12.5
  % of GDP -3.5 -4.8 -6.0 -4.5 -3.9 -4.3
Household saving ratio (% of HHDI)10 2.8 2.2 1.7 1.8 1.8 1.8
TWI11 77.9 68.5 66.4 68.0 69.3 69.2
90-day bank bill rate11 3.6 2.6 2.6 3.4 4.2 4.5
10-year bond rate11 3.3 3.3 3.5 4.2 4.6 4.8

Notes:

  1. Forecasts finalised 20 November 2015.
  2. Contribution to GDP growth.
  3. Estimated as the percentage difference between actual real GDP and potential real GDP.
  4. Percent of the labour force, March quarter, seasonally adjusted.
  5. Percent of the working-age population, March quarter, seasonally adjusted.
  6. Quarterly Employment Survey, average ordinary-time hourly earnings, annual percentage change.
  7. Annual percentage change.
  8. System of National Accounts (SNA) and merchandise basis, annual average percentage change.
  9. Quotable Value New Zealand (QVNZ) House Price Index, annual percentage change.
  10. Treasury estimate for 2015.
  11. Average for the March quarter.

Longer time series for these variables are provided on page 144.

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

Page top