Economic Forecast Assumptions
Earthquake - Details of the economic and fiscal impacts are discussed in the box on page 13 in chapter 1.
Trading partner growth - The economies of New Zealand's top-16 trading partners are expected to grow 3.0% in 2011, 3.8% in both 2012 and 2013, 3.9% in 2014 and 4.0% per annum thereafter. These are a cumulative 2% lower than in the Budget forecasts and similar to growth rates in the Consensus Forecasts report forOctober 2011.
Global inflation and interest rates - Annual inflation in the G3 countries (United States, Japan, euro area) falls from 2.0% in the June 2011 quarter to 1.5% in the December 2012 quarter and remains close to this rate over the forecast period. Short-term interest rates in the G3 begin to rise from their current rate of 0.6% in late 2013, reaching 2.4% in the June quarter 2016. G3 long-term interest rates begin to rise from their current rate of 1.9% in late 2012 to 3.1% in the June 2016 quarter.
Oil prices - The average price of West Texas Intermediate (WTI) oil rises from around US$87/barrel in the December 2011 quarter to US$93 in the June 2016 quarter. This projection is based on a monthly average of futures prices from the New York Mercantile Exchange recorded on 19 September 2011.
Terms of trade - The merchandise terms of trade, as measured in the System of National Accounts (SNA), are estimated to fall 4% over the year to September 2012 as commodity export prices fall from recent highs. The terms of trade remain higher than in the Budget Update owing to a higher starting point and offsetting weakness in merchandise import prices.
Monetary conditions - The New Zealand dollar Trade Weighted Index (TWI) exchange rate falls from 72.0 in the September 2011 quarter to 70.0 in the December quarter, holding there throughout 2012 and 2013. From 69.6 in March 2014, the TWI falls to 62.3 in the June 2016 quarter. Ninety-day interest rates are forecast to rise from 2.8% in the September 2011 quarter to 5.3% by the end of the forecast period.
External migration - The net inflow of permanent and long-term migrants of 2,300 in the year ending August 2011 becomes a net outflow of 1,000 in the year ending March 2012 as a result of the recent rise in departures to Australia (where labour market conditions have been stronger) and the impact of the Canterbury earthquakes. Additional activity related to the earthquake rebuild supports a rebound in net migration to 15,000 in the year ending March 2014 before settling at our long-run assumption of 10,000 in the year ending March 2016.
