NZ economy may stall in 2009 as jobless rate rises, Key says

Thursday 15th January 2009

New Zealand's economy may tread water this year, delaying the end of the first recession in a decade, as the jobless rate rises, amid signs of a prolonged global slump, Prime Minister John Key said.

The Treasury made the assessment to a meeting of senior ministers that Key convened today to consider responses to the economic downturn. Unemployment may reach 7.5% this year, Key said, citing the Treasury.

"Our balance sheet is in better shape than most - we've got a lot of things going for us," Key said after the meeting. "We have to make sure businesses are in the best possible situation."

Key said details of government initiatives will be announced on Feb. 4. He named NZX Ltd. chief executive Mark Weldon to head a summit meeting on employment to be held in Auckland next month.

The announcement comes after figures showed companies are the gloomiest about their own activity since 1970, with one in three planning to lay off workers. Unemployment is currently 4.2% and the Treasury had previously predicted it would rise to 6% this year.

Standard & Poor's this week cut the outlook on New Zealand's AA+ foreign currency debt rating to 'negative,' citing the nation's ballooning current account deficit and the prospect of ongoing budget deficits.

New Zealand's dollar tumbled to 53.50 U.S. cents today from 55.19 cents yesterday. The economic slump has spurred economists to predict a bigger cut to the official cash rate when Reserve Bank Governor Alan Bollard announced his review of monetary policy on Jan. 29. Westpac Banking Corp. predicting a 100 basis points cut to 4% and a rate as low as 2.5% by mid-year.

By Jonathan Underhill

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