New Zealand Treasury Sees Hard Times on Eve of Election

The New Zealand Treasury sees hard times ahead in its November Economic and Fiscal Update of 7 November 2008, produced on the eve of the election.

The release of the document by outgoing Minister of Finance Michael Cullen of the Labour Government apparently caused consternation at No. 1 The Terrace because it was labeled "In Confidence" and was not intended for release.

National finance minister-designate Bill English has publicly complained Cullen has breached constitutional convention by failing to obtain the incoming government's approval to release sensitive information.

Cullen, seeking to make some political hay while he still has his hands on sensitive material, claimed that the paper shows the incoming National government is misleading the public into thinking that the Treasury briefing to National gave a rosier picture.

The released document, which looks like a cut & paste by a substance-abusing economist, downgrades the Treasury's earlier GDP forecasts against a backdrop of weakening international demand and a slowing domestic economy.

If anything, updated global forecasts by both the OECD and the IMF in the last 24 hours indicate that the Treasury's forecasts will need to be adjusted downwards yet again.

The Treasury predicts GDP growth in NZ's top 20 trading partners will grow by 1.8 percent in calendar year 2009 but the OECD is projecting a GDP growth rate for the OECD area of -0.3 percent.

Year................Treasury........OECD (OECD Area)

2008....................2.8.........................1.4

2009....................1.8.......................-0.3

2010....................3.0.........................1.5

The Treasury is now forecasting that the New Zealand economy will contract by -0.5 percent in March year ending 2009, growing only by 1.4 percent in 2010 but bouncing back by 3.2 percent in 2010. The IMF shows a similar track in the year ahead, but sees a smaller bouncer back in 2010 for New Zealand.

NZ Real GDP %
.......................... Treasury (March yr)...........IMF (Calendar year)

2009.............................-0.5................................0.7 (2008)

2010...............................1.4.................................1.5 (2009)

2011...............................3.2.................................2.3 (2010)

The Treasury expects unemployment to rise to 5.5 percent in March 2010 and maintain that level in 2011.

Hard times indeed...