##ies of commodities, and reduced import intensity in china. the baltic dry index, which measures the cost of shipping raw materials such as minerals m obstfeld, “ the global economy in 2016 ”, imf survey magazine, january 2016. financial times, “ capital flight from china worse than thought ”, january 20, 2016. several developments illustrate this : policy rates are close to zero in most advanced economies, and negative in some ; quantitative easing by the ecb and boj last year was the highest since 2011 ; sovereign bond yields in several countries – mainly in europe – are currently negative for 2 year maturities and in some cases 5 year maturities ; the policy rate at the bank of england is the lowest since its inception in 1694 ; prices of financial assets and real estate surged to record levels in many countries ; switzerland sold 10 year bonds at a negative yield, and mexico twice issued 100 year foreign - currency bonds that were heavily oversubscribed. oecd economic outlook ; november 2015, page 19. bis central bankers ’ speeches and grains, has fallen nearly 70 percent since the end of july 2015 and is at its lowest level since the index was established 30 years ago. figure 1 : world trade volumes and gdp growth source oecd. forecasts of global gdp growth in 2016 look a bit more promising with the imf, world bank, bis, and oecd forecasting growth of between 2. 9 and 3. 4 percent. however, if world trade remains depressed and market volatility continues, we are likely to see downward revisions to these forecasts. these institutional projections show improving growth in most advanced and emerging market countries ( although with slower growth in china ) and a pickup in world trade. all institutions see the balance of risks lying on the downside, with the main risks being : • monetary policy in the three largest central banks is on a divergent path with the federal reserve having begun to raise the fed funds rate, while further monetary easing is possible in the euro - area and japan. this policy divergence could lead to greater financial market volatility and uncertainty. • the weakness in commodity prices could be greater than projected and further reduce growth in commodity producers such as brazil, chile, mexico, russia, saudiarabia and south africa. • a further slowdown in china could feed through into lower demand and production in china ’ s many trading partners. for example, 10 percent of the european union ’ s exports and 18 percent of japan

100 countries – including our main trading partners. ii ) el nino new zealand is experiencing el nino weather conditions. its impact on the economy will depend on whether it leads to drought conditions and, if so, where the drought hits and how long it lasts. a prolonged drought would lower agricultural production and reduce farm incomes. new zealand ’ s last major el nino occurred in 1997, and like the 2013 drought, reduced gdp by around ¾ percent. farming patterns however, have changed considerably since the 1997 el nino event. since 1996, the dairy herd has increased by 61 percent, while sheep and beef numbers have fallen by 37 percent and 24 percent respectively. dairy numbers have expanded in canterbury, southland, waikato and otago with much of the growth in canterbury facilitated by extensive investment in irrigation. the severity of the 2012 / 13 drought reflected its impact in northland, waikato and the manawatu – areas with heavy concentrations of dairying, but limited irrigation. 7 d ford, a wood, ‘ el nino and its impact on the new zealand economy ’, rbnz analytical notes an2015 / 07, december 2015. bis central bankers ’ speeches figure 3 : irrigation by region ( share of total hectares farmed ) source : statistics new zealand agricultural census. iii ) dairy prices most dairy farmers have experienced two consecutive years of negative cash flows and cut back their spending. our december 2015 mps projections assumed that the price of wholesale milk power would rise gradually and reach usd 3300 / metric tonne by mid - 2018. the current auction price of usd 2188 / metric tonne remains well below this level. farm gate prices are falling in the us and europe causing milk production to slow, while fonterra expects production in new zealand to decline by around 6 percent in the current season. last week, fonterra reduced its pay - out estimate for this season by 10 percent. iv ) net migration over the past 3 years net permanent long - term migration has totaled 133, 000. the december mps projections assumed that we are about half way through the current migration cycle, which would make it the strongest net migration surge for several decades. however, there is considerable uncertainty around the magnitude of future flows given the difficulty in forecasting arrivals. a stronger or more persistent net migration inflow would create demand pressures, but also raise the economy ’ s supply potential. the impact on consumer price inflation would depend on how quickly the supply response ( eg from the growth in labour force ) offsets the additional demand