In a recent report, two New Zealand Reserve Bank economists have estimated the real effects of oil price shocks on New Zealand’s GDP. The economists conclude --
- a 5% permanent increase in retail fuel prices implies a decline in NZ's GDP of 0.3%
- a succession of oil price shocks such as those in 2007-08 had "a substantial effect on real GDP in New Zealand"
- New Zealand's oil use is different, leaving us more vulnerable to oil shocks. Faced with oil shocks New Zealand households and firms have only one third of the ability to lower the amount of oil they consume, compared with the United States.
- real wages decline in response to an oil shock, as they are eroded by inflation.