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Pre-election Economic and Fiscal Update 2017

Alternative Scenarios

The following scenarios show how the economy might evolve if some of the assumptions in the main forecast are altered. They illustrate two of the many ways that the economy may deviate from the main forecast. Scenario One illustrates the economic and fiscal impacts of a higher terms of trade and stronger inflation. In this scenario, stronger export prices hold the terms of trade higher throughout the forecast horizon and inflationary pressures are stronger. Higher nominal GDP and tax revenues generate larger fiscal surpluses and lower net debt. Scenario Two illustrates the impact of weaker underlying momentum in the domestic economy. Specifically, tighter global credit conditions lead to a higher degree of credit rationing, dampening investment and private consumption growth. Weaker demand leads to lower inflationary pressure and softer nominal GDP growth, resulting in a weaker fiscal position.

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