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Pre-election Economic and Fiscal Update 2017

3 Risks and Scenarios


  • In this chapter we discuss the risks and uncertainties surrounding the economic and fiscal forecasts. Fan charts are used to help illustrate forecast uncertainty and two alternative scenarios are presented to show how the economic and fiscal outlook might evolve under different assumptions and judgements. Specific Fiscal Risks are discussed in Chapter 4.
  • Key risks to the international economy include: high levels of debt in China; uncertainty around fiscal stimulus and monetary policy normalisation in the US; the ability to achieve sustainably higher growth rates in Europe and Japan remains unclear; and high household debt and housing market risks in Australia. Should these risks materialise, global growth could deviate from that presented in the main forecast and, with it, key forecast judgements such as the terms of trade, exchange rate and migration flows.Other risks include the impact of the UK’s exit from the European Union and ongoing political debate about the merits of trade liberalisation.
  • There are risks to domestic activity around household and investor behaviour and how high household debt levels and slowing house price growth will impact demand. There are also risks around the technical assumptions underpinning these forecasts, such as estimates of spare capacity in the economy which, if altered, would impact how the economy is expected to evolve.
  • Scenario One illustrates how a higher terms of trade could support a faster pace of economic expansion and a stronger fiscal position. Scenario Two shows how weaker momentum in domestic activity could lead to weaker fiscal outcomes.
  • The Crown's balance sheet is exposed to a number of risks beyond those associated with the operating balance. The Crown's financial position is exposed to risk through changes in the value of the Crown's assets or liabilities, and also through the potential impact of the Crown's fiscal obligations that arise from policy choices.
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