14 Jun 2012

NZ could face tougher times, Treasury warns

6:12 am on 14 June 2012

The Treasury expects Europe's economic woes to last another five to 10 years and warns New Zealand could face tougher economic times.

Treasury Secretary Gabriel Mahklouf told Parliament's finance and expenditure select committee on Wednesday that there is no easy fix to Europe's problems and the impact of what is happening there is very serious.

"One of the more depressing features of the current crisis is that I think we're entering a world, or have entered a world, where this sort of uncertainty and fragility of the world economy is probably going to carry on for five to 10 years."

Mr Mahklouf said the Treasury is forecasting that the European economy will contract by 0.6% this year, but things could be worse.

He warned that if the Greek and other European economies collapsed, that could lead to a Depression and a slowdown in world trade that would hurt China, Australia and ultimately New Zealand.

Mr Mahklouf says it reinforces the need to ensure New Zealand's financial systems are in order, that the Crown has a balance sheet which can withstand shocks and that there is a focus on building a productive and competitive economy.

Finance Minister Bill English also acknowledges there is no easy recovery for the New Zealand economy.

"In the case of this recovery from this particular recession, I think it's widely understood that you get this sort of 'grumpy growth' phenomenon, where rather than bouncing out of a recession with a different balance in the economy, it's a long, slow grind."

While the Treasury appears to be now more pessimistic than when it prepared the economic forecasts for the Budget in May, neither it nor Mr English are yet saying they are abandoning the growth forecasts.