New Zealand’s economic recovery has been ‘delayed, but not derailed’, Finance Minister Nicola Willis said on Thursday, as Treasury’s worst case scenario of economic impact from the Middle East conflict predicts inflation at 7.4%.
Releasing Treasury scenarios from a month-ago, Willis described scenario one as "best case", with a ceasefire in early to mid-April and Persian Gulf oil flows gradually resuming, scenario two was a prolonged conflict, and three was a prolonged, more severe conflict.
| 2026 | 2027 | 2028 | |
| Annual inflation (% June quarter) | |||
| Base | 2.7 | 2.3 | 2.2 |
| Scenario 1 (US$110 oil) | 3.9 | 1.5 | 2.1 |
| Scenario 2 (US$135 oil) | 5.2 | 1.8 | 1.4 |
| Scenario 3 (US$180 oil) | 7.4 | 2.1 | 1.2 |
| Real GDP growth (annual % change, June quarter) | |||
| Base | 2.3 | 3.3 | 2.7 |
| Scenario 1 (US$110 oil) | 2.0 | 3.4 | 3.0 |
| Scenario 2 (US$135 oil) | 1.5 | 2.6 | 3.7 |
| Scenario 3 (US$180 oil) | 0.8 | 1.7 | 4.4 |
| Unemployment rate (%, June quarter) | |||
| Base | 5.3 | 4.7 | 4.4 |
| Scenario 1 (US$110 oil) | 5.3 | 4.7 | 4.3 |
| Scenario 2 (US$135 oil) | 5.4 | 5.5 | 4.7 |
| Scenario 3 (US$180 oil) | 5.7 | 6.6 | 5.4 |
It was only a week before these latest scenarios were set that Willis released Treasury's 'worst case scenario' of inflation forecast to reach 3.7% on March 16. Consumers Price Index (CPI) inflation was an annual 3.1% in both the March and December quarters.
"These scenarios were produced a month ago," Willis said. "And if a week is a long time in politics, a day is a long time in the oil market. Since the scenarios were produced, prices have continued to move around, both for the price of crude oil today and the future price of oil..."
Now, the worst case was inflation at 7.4%, GDP at 0.8% and unemployment at 5.7% for the 2026 June quarter. Annual inflation hit a 32-year high of 7.3% in June 2022.
Willis said while there was "still a huge amount of uncertainty about the ceasefire, and in the last few days, the price of Brent crude [oil] has bounced up and down as different developments in the Middle East have been reported".
"But events of the past few weeks, conversations with trading partners in the latest futures pricing for oil provide some cause for optimism, albeit with ongoing volatility."
Treasury had advised Willis New Zealand's economic recovery was delayed "but not derailed."
"What we are presenting to you is a picture of an economy that has been disrupted but not derailed."
To what extent that meant rewriting the Budget, Willis said the Government was "having to squeeze additional things into the budget that we haven't envisaged…"
"So that has meant a rework, and just like every Kiwi household in the country right now is looking at the higher cost of petrol or diesel and having to rejig things elsewhere, we're having to redo things elsewhere."
Labour economic spokesperson Barbara Edmonds said it was to Willis' credit she provided transparency over the scenarios.
"I've been in meetings all day today with different economists from both the private sector and international economists. The one thing we're all certain on is that there is great uncertainty."
25 Comments
Recovery, eh?
Now there's a word with implications.
Of what, pray tell?
Growth?
Of what. pray tell?
Time our media perhaps asked that question.
Willis surplus is like always - this year plus 2 more years, in 2030 it will be surplus in 2032
thats why both Moddy and fitch have downgraded outlook, they are sick of the plus 2 years BS
The prevailing attitude for decades with politicians has been that by virtue of their position they are demonstrably smarter than the average Joe citizen. It is an interesting perspective to have, because when they were outside government they would have pointed to politicians and called them 'stupid'. The attitude of the current crop is no different, they treat us all like we're uneducated imbeciles and children. The problem is we're not, and we can see through their BS very quickly. On this site alone there are well qualified commentators and/or people like myself, analysts, who are learning every day. We not only see the BS, we also see the opportunities, mostly lost because of the ideologues in government with idea proof blinkers and of course tin foil hats just in case God forbid, some common sense might leak in!
These people might be well capable of presenting themselves well to other managers, even swaying boardrooms,but the dearth of critical thinking elevates the level of risks for the economy to crisis or beyond.
Without a vision, plan and focus on national resilience, NZ's economy is always going to victim to the vicissitudes of external events. Because of the ideological demand to be a part of the 'global economy' without a plan B which, by the way, doesn't prevent us from being a part of the global economy, we are perpetually fated to be subject to the whims of others with no ability to insulate ourselves from the more extreme impacts.
$180 oil won't cause a recession according to treasury?
Our economy wouldn’t grow when petrol was $2.40 and inflation was under 3%. You’d have to have rocks in your head to think it will do better with petrol at $5 a litre, inflation at 7.4%, OCR at 5%, unemployment at 5.7%, etc.
OMG are you saying the Treasury have rocks in their heads (hint yes)
IMO what we are seeing is Govt influence with treasury. Pressure applied behind closed doors, the mentality to confirm to the govt of the day's wishes or it will be 'career limiting', and what better environment for the govt to do so when it is very difficult to find another job out there currently. Bizarre to think that the same culture was under the last govt but more so the pressure of conforming to a large focus on the likes of hiring for inclusion and diversity over merit or it would be career limiting, yet here we are. There might be a different picture on each side of the coin, but it's the same coin.
So the worst case a month ago is now better than the best case? How is that possible? What has changed to come up with such radically different numbers?
Engineered advice to please their masters, especially when their masters are facing the possibility of political oblivion.
Those numbers are rubbish
Agree. Engineered especially for an election year.
If a politician lips are moving they are probably lying, in an election year its 100%...
and hells bells https://youtu.be/qFJFonWfBBM - as my kids used to say -
dad , play it way to loud!
Has Nat vs NZ First relationship cooled a bit lately.
I have no time for Willis as a Fin Min, but FFS Bennet gets the Panini treatment while Willis who has lost weight gets shit from Labour and Shane Jones, got to say NZ treats female politicians get treated like shit
I think Hippies treatment of his ex is the thing to focus on, not some females weight loss.
They certainly will be engineered.
Having worked inside the bowels of government agencies before, I can assure you that 'free and frank', objective advice is largely a myth.
It's very much 'Yes, Minister'
It happens occasionally, but that can lead to the Minister "losing confidence" in the bureaucrat and they then move on. Unless the Minister has to move on first. Sometimes there are arm wrestles. Sometimes the Minister can't win that battle because it's not one of the decisions they can legally intervene in, but can whack them on something they can. And vice versa. It's that kinda place.
Literal fantasy land stuff.
One wonders if they’re just making it up as they go along.
Could you give us an explanation of the irregularities here with your insight? I always enjoy your analysis.
Treasury are a joke.
Only 6.6% unemployment with oil at US$180????
More likely 9-10%, minimum
But wait there's more! Real GDP will be growing at 4.4% at year 3 with $180 oil. Amazing!
Surely they're not modelling the oil price staying at $180 for 3 full years in this scenario? Looks more like a peak of $180, sustained for months to a year, then falling back down to "normal". So the 4.4% growth is recovery from the earlier battering, in a benign inflationary or even deflationary environment.
Delayed "but not derailed."
Deluded, but not demented.
Dejected, but not disloyal.
Dismayed, but not defenestrated.
Disjointed
Dishonest
Desparate
How about admitting the truth for once? It's been derailed.
Forecasts made on grossly over-simplified models that will be overturned the next time the agent of chaos changes his mind.
Or gets bored.
Probably tomorrow.
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