30 Nov 2011

OECD slashes growth forecast for NZ

5:03 am on 30 November 2011

Cuts to the OECD's growth forecasts for New Zealand are more severe than the Treasury's most recent forecasts in October.

The difference between the two agencies is about one percentage point of growth over the next two years.

In May this year, the Organisation for Economic Cooperation and Development predicted growth of 4% for New Zealand in 2012, but says delays to the Christchurch rebuild and debt repayment is hampering growth.


It is now forecasting growth of 2.5% in 2012, rising to 3% the following year. That compares to the New Zealand Treasury's forecast at the time of October's pre-election economic and fiscal update of 3.1% and 3.5%.

The OECD says it could get even worse if Europe's debt problems can't be contained and it slips into a deep recession taking the United States and Japan with it.

The OECD says forecast increases in overseas debt are a further risk to the recovery in New Zealand, along with any backsliding on the Government's surplus.

It advises a spending cap, changes to superannuation entitlements and asset sales to avoid a spike in borrowing costs.

The principal economist for the New Zealand Institute of Economic Research says he is putting more faith in the OECD forecast.

Shamubeel Eaqub says the OECD shows a greater understanding of the seriousness of the European situation than the Treasury's forecasts.

He believes the crisis will hit world trade and financial markets.

English says NZ will focus on Asia

Finance Minister Bill English says New Zealand will be affected if there is a major breakdown in European economies.

Mr English told Checkpoint on Tuesday the Government will not be paralysed by worrying about the crisis in Europe.

He says New Zealand is closer to Asia and Australia and will concentrate on opportunities there.

Mr English says National can also lower government expenditure over the next few years without putting a cap on spending, as advocated by the ACT Party.

Mr English expects to be briefed by Treasury officials in the next couple of days.