Treasury warns Key of lower growth, higher unemployment, bigger budget deficit

The details of Treasury's briefing on the economic and budget outlook yesterday to incoming Prime Minister John Key have been published.  They show Treasury expects lower economic growth, higher unemployment and a bigger budget deficit over the next five years because the global and financial outlook had deteriorated since forecasts for the pre-election fiscal update (PREFU) were prepared before the election. Documents released by interim Finance Minister Michael Cullen showed Treasury now expected the unemployment rate to rise to a peak of 5.7% rather than the 5.1% previously forecast and the 4.2% in the September quarter. It also forecast lower nominal GDP growth of around NZ$2-4 billion a year over the next five years, with a cumulative reduction in GDP growth NZ$15 billion over the 2009-2013 fiscal years. This meant the likely budget deficits would be NZ$1.5 billion lower per year from 2010/11 onwards and result in cumulative increases in budget deficits and debt of around NZ$5 billion over the next five years. Yesterday incoming Prime Minister John Key was quoted as saying the briefing did not predict "Armageddon" and the currently planned infrastructure spending and tax cuts would be enough of a stimulus to revive the economy, along with expected interest rate cuts.