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NZ Treasury predicts deteriorating growth, bigger deficits

Thursday 13th November 2008

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The New Zealand economic and fiscal outlook has deteriorated in the past six weeks, reflecting signs of a worsening global downturn, according to Treasury forecasts.

The estimates were part of the briefing for the incoming government though it was current Finance Minister Michael Cullen who released them. They show economic growth is forecast to slow to 1.3% in 2010 and 3.1% in 2011, down from the pre-election estimates of 1.8% and 3.4%.

The jobless rate is expected to rose to 5.7% in 2010, more than the 5.1% prediction six weeks ago and up from the 4.2% rate in the third quarter of this year.

The Treasury left unchanged its estimate for the cash deficit in the year ending June 30 at NZ$5.9 billion. Still, it projects the gap will widen to NZ$8.08 billion in 2011 and NZ$9.1 billion in 2013.

"The global financial turmoil that began last year has intensified over the past two months, leading to an expectation of much weaker global economic growth," the Treasury said in its note. New Zealand's growth "will be affected via weaker export demand, lower commodity prices, reduced asset values and weaker confidence."

Prime Minister-elect John Key received the Treasury briefing yesterday and later described the revisions as "more pessimistic but I wouldn't describe it as Armageddon."

The outlook won't derail National's policy plans, including tax cuts slated for April, he said.

New Zealand's economy fell into recession in the first half of the year and some economists say growth may not revive until 2009. The central bank is expected to cut the official cash rate at least 50 basis points to 6%.

By Jonathan Underhill

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