A medium term divergence: RBNZ and Treasury

The Rates Blog is reporting that new Treasury figures will indicate that New Zealand’s expected economic situation will be revised downward in the medium term.  However, the RBNZ’s latest MPS (effectively a forecast) states that we will get back to “potential” – with 4.8% growth in March 2011 and 3.8% growth in March 2012.

Treasury appears to think that NZ is facing permanent shocks to economic activity – while the RBNZ believes we are currently facing a transitory negative shock.  These debates are erupting around the world for all sorts of economies – but it is surprising to see the monetary body seemingly taking a different stance to the fiscal body.

Tell you what – when Treasury forecasts are actually released we will have a closer look, and we will try to figure out exactly what the difference is.  Is it just the rhetorical representation of the forecasts that differs, or do the two different organisations have different beliefs regarding the persistence of the negative shock hitting New Zealand for overseas?

2 replies
  1. Miguel Sanchez
    Miguel Sanchez says:

    The irony is that the RBNZ’s expected rebound comes entirely from the projected fiscal impulse. And where does that projection come from?

  2. Matt Nolan
    Matt Nolan says:

    Hi Miguel,

    The fiscal impulse does account for why the recession stops in June. However, the medium term boost comes from investment and exports pushing back towards “trend”.

    I would like to see what Treasury says on these issues – and then try to think through it a bit. RBNZ is right that investment and export volumes have to rebound from the base they’ve got them going to in their forecasts – the question is whether Treasury has a reason why this may not happen/why there are big countervailing factors.

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