Source: Radio New Zealand
Finance Minister Nicola Willis faces questions as economic outlook downgraded. RNZ / Samuel Rillstone
Treasury officials have this week decided to revisit their economic forecasts for this year’s Budget – just five weeks before its scheduled delivery.
In a briefing at her Beehive office, Finance Minister Nicola Willis told reporters the move was “very unusual” and demonstrated the intense global volatility.
She said she was awaiting the updated forecasts before Cabinet could sign off on the Budget, due to be announced on 28 May.
“Treasury are working their hardest to make those forecasts as accurate as they can be, but they are just very cognisant that every time these numbers move in international markets, it has pretty significant implications for what they’re forecasting in growth, inflation, state of our books.”
Willis said the crisis had meant a “rework” of the Budget, given the need to squeeze in extra unexpected initiatives like the recently announced cost of living support.
Asked about any significant spending cuts, Willis said “a range of savings” had been found.
“I am very conscious that many New Zealanders would like to see us splashing the cash right now, and I would love to ease the pressure that many people are feeling,” she said.
“We simply can’t do that responsibly as a country right now.”
Finance Minister Nicola Willis faces questions as economic outlook downgraded. RNZ / Samuel Rillstone
‘Disrupted but not derailed’
Willis said Treasury had advised her – based on the markets – that oil was expected to dip back below US$80 (NZ$135) by the end of the year.
“We also hold out the hope that oil will gradually resume flowing through the Strait of Hormuz in the second half of this year,” she said.
“What we are presenting to you is a picture of an economy that has been disrupted, but not derailed, and will continue to grow this year.”
Willis presented several potential scenarios – prepared by Treasury – regarding possible economic impacts of the Iran crisis.
For example, if oil prices averaged US$110 a barrel in the current quarter before returning to normal early next year, officials expected inflation could hit 3.9 percent this financial year.
GDP growth would be expected to fall to 2 percent, while unemployment would remain steady at 5.3 percent.
Willis said, based on recent developments and market expectations, that scenario seemed to be the “most likely”.
In a “prolonged and more severe” conflict where oil prices averaged $180 across this quarter and next, inflation could climb to 7.4 percent, with growth of just 0.8 percent and an unemployment rate of 5.7 percent.
Willis said that outcome was “extremely unlikely” and noted the scenarios were produced a month ago.
“If a week is a long time in politics, a day is a long time in the oil markets.”
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand
