1. Economic Outlook for New Zealand
September 2019
Disclaimer: This presentation is strictly for training purposes.

2. Summary of key messages

3. Headline CPI inflation is below objective of 2%…

4. … driven by weak tradable inflation
… driven by weak tradable inflation. Non-tradable provides some basic support.

5. …but no acceleration in sight…

6. … as declining import prices keep holding tradable inflation back.

7. At the same time, weak aggregate demand is further undermined by negative demand shocks (such as…) and weakening global growth.

8. Money and Forex market conditions are accommodative -- with negative interest rates and undervalued kiwi

9. Accommodative stance of interest rate policy…

10. … is looser then predicted by a policy rule, providing extra cushion.

11. The US FOMC continued a loosening cycle…

12. … as aggregate demand stagnates…

13. … and inflating is back in the lower half of target band again.

14. Baseline forecast
External sector assumptions
Key judgements
Forecast

15. External sector assumptions
2020
2021
2022
US Gross domestic product (%)
1.2
1.4
1.3
US Consumer price index (%)
1.8
1.6
1.7
US Federal funds rate (%) 2
BRENT (USD/barrel) 72
Source: Deloitte Insights, US Economic forecast, 3 quarter 2019

16. OCR commitment: 1% through 2020:Q4
Key judgements
Constrained exchange rate appreciation - at 1% p.a. through 2022; a slower pace than necessary to close a real exchange rate gap over the same time
OCR commitment: 1% through 2020:Q4

17. Summary of baseline forecast

23. Alternatives and risk assessment

24. Mild fiscal stimulus of 1% of GDP over the 2020/2021 fiscal year.
Considered scenarios
Mild fiscal stimulus of 1% of GDP over the 2020/2021 fiscal year.
US economic growth lower than expected ( by 0.1 ppt)
US enters deep recession (output gap -2% in 2021)
Unconventional policy response:
OCR commitment extended through 2022
Exchange rate commitment: NZD/USD 0.65 (or weaker) through 2022

25. Fiscal stimulus

26. Global recession

27. Unconventional policy response to global recession: FOREX commitment: NZD/USD 0.65 (or weaker)

28. Summary of risk assessment

29. Recommendations for policy strategy

30. Annex

31. … as declining import prices hold tradable inflation back.