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Annual Report of the Treasury for the Year Ended 30 June 2014

A Stable and Sustainable Macroeconomic Environment

A stable and sustainable macroeconomic environment is a fundamental platform for strong, sustained economic growth and higher living standards. Macroeconomic stability provides households and firms with the predictability and certainty they need to make good decisions about employment, saving, investing, innovating and pursuing opportunities.

The macroeconomic environment improved during 2013/14. Real GDP growth accelerated to 3.3% in the year to March 2014, the fastest annual growth since 2006, and the unemployment rate fell to 5.6% in June 2014 from 6.4% a year earlier. Annual Consumer Price Index (CPI) inflation moved back toward the mid-point of the 1% to 3% target range and inflation expectations remained well anchored (see graph below).

The current-account deficit remained low, assisted by the near-record high terms of trade (see graph on page 15), and net external liabilities declined. The fiscal deficit continued to fall from its earthquake peak in 2010/11 and the rise in government debt moderated.

Inflation and inflation expectations
Inflation and inflation expectations   .
Sources:  Statistics New Zealand, Reserve Bank of New Zealand (RBNZ)

The improving fiscal position, robust growth and low and relatively stable inflation contributed to the credit rating agency Fitch changing the outlook on its rating to positive indicating the possibility of an upgrade in its rating. Currently, Moody's has New Zealand's credit rating as AAA, while Standard and Poor's and Fitch rate us at AA. Government debt as a percent of GDP remains low by international standards notwithstanding the increase experienced over recent years.

Achievement of our desired outcomes in this area requires a further lift in economic and fiscal performance. Global economic and financial conditions, although improving during 2013/14, continue to be a negative risk. They are also continuing to have an influence on domestic economic and financial developments, including through their impact on the exchange rate.

Current-account balance and net international investment position
Current-account balance and net international investment position   .
Source:  Statistics New Zealand
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