New Zealand’s economic recovery ‘delayed, but not derailed’, says Finance Minister, with Treasury's new worst case inflation scenario at 7.4%

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.

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."