Government forecasts "sustained" growth

NZPA

Thursday 19th May 2011

The Government is promising a period of reasonable and sustained economic growth that does not set off inflation, meaning interest rates will stay low.

"Interest rates will stay lower for longer," Finance Minister Bill English said when unveiling what he said was a balanced and responsible budget that lifted national savings and funded the recovery of Christchurch, while protecting the vulnerable.

He said the earthquakes in Christchurch were a "one-off" that the economy would recover from. The budget deficit of $16.7 billion in the year to June 30, 2011 was large at 8.4 percent of gross domestic product (GDP) but it narrowed to $9.7b the following year and was in surplus by 2015.

English is forecasting that the economy will grow by 3 percent per annum over the next three years, following a subdued recovery so far. GDP peaks at 4 percent in 2013.

The unemployment rate falls from 6.8 percent this year to 5.7 percent next year and 4.8 percent in the next two years.

The Government is forecasting that inflation will fall from 4.5 percent currently to 3.1 percent in the March quarter of 2012, 2.4 percent in the following year and 2.5 percent in the year after that.

English expressed optimism that the hoped for rebalancing of the economy was occurring and said the Government was starting to do what businesses and households had been doing for the last few years in terms of addressing debt and spending.

He said credit rating companies would have to make up their own minds about the budget and the Government had the same concerns as the agencies had.

Standard & Poor's has the Government's credit rating on a negative outlook. English said his view was that the budget warranted the ratings agencies looking favourably at New Zealand's rating.

"We will see what they think about it," he said.

When asked if the economic forecasts were believable when the Government had forecast growth previously and the economy had flat-lined, he said there was good reason to believe that the economy was in for a period of reasonable growth. The reasons included the stimulus from the rebuilding of Christchurch

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