25 Oct 2011

Treasury expects economy to grow

6:44 pm on 25 October 2011

The Treasury expects the economy to grow on average nearly 3% a year to March 2016.

The prediction comes in its pre-election economic and fiscal update, which also sees the unemployment rate dropping to 4.7% by 2016 and the government's books returning to surplus in the year ending 30 June 2015.

The Treasury warns, however, that its forecast is dependent on European governments dealing with the Eurozone debt crisis and stabilising financial markets.

Should that not happen, The Treasury includes another scenario in which there is a 20% chance the New Zealand economy could worsen, with economic activity $35 billion lower over the forecast period.

Should that happen, it says, the Government's books would remain in deficit in 2015 and 2016.

Finance Minister looks on bright side


Finance Minister Bill English says he is not concerned about the Treasury forecast.

He says the government is taking the view that a combination of the Christchurch earthquake rebuild - which has to happen - and reasonable prospects for export prices give New Zealand a reasonable chance or moderate growth over the next few years, evening if there is some global fluctuation in growth.

And says, says even if the economy slows, the National Party will do all it can to get the public finances back into surplus.

Labour disagrees


However, the Labour Party says the forecasts confirm National has failed to drive the economy forward while in government.

Finance spokesperson David Cunliffe says the update was written before the double downgrade from credit agencies and the future does not look at all rosy.

He says the 2011 budget was the worst fiscal outlook New Zealand has ever seen and there is no change in this pre-election update on that "budget night bleakness".

Mr Cunliffe says the forecasts will not force a re-think of Labour's own policies, which he says are affordable.

Labour has delayed announcing its savings policy until it has seen the pre-election economic and fiscal update.

Its finance spokesperson David Cunliffe says Labour wants to be sure its policy is based on as up-to-date figures as possible.