Asian economies are slowing more abruptly than expected, says a Treasury adviser, which will increasingly affect New Zealand's economy over the course of the year.
Economic data from major trading partners in the region points to an abrupt slowdown with China, now growing at its slowest rate in seven years.
Treasury macroeconomics adviser Michael Ridell said the slowdown in the Asian region is a combination of reduced domestic demand and the stuttering western economies.
He said gloomy economic data has not yet shown up in trade figures for New Zealand and it is difficult to predict what is in store.
Mr Ridell said the crisis is in many respects without good precedent, but is likely to increasingly affect New Zealand's economy over the course of the year.
Finance Minister Bill English told Morning Report export volumes from China and Asia are falling, which will affect Australia, because Asia is its biggest market.
In turn, Australia is New Zealand's biggest market.
Mr English said the return of dairy export subsidies in Europe is also a huge concern to New Zealand which will be lobbying the European Union over the issue.
However, he said the benefits of recent interest rate cuts are flowing through to the economy and will help New Zealand weather the worst of the recession.
Large OCR drop predicted
Economists are expecting another large cut in interest rates this week, as the pace of the global economic downturn shows few signs of abating.
Estimates of world growth continue to weaken, commodity prices continue to decline and raising money overseas remains costly.
The benchmark interest rate stands at 5%, and economists expect the Reserve Bank to drop that by at least a full percentage point when it reviews the Official Cash Rate on Thursday.
Westpac chief economist Brendon O'Donovan is predicting a 1.5 percentage point drop this week, with rates eventually falling to 2.5%.
Fonterra is expected to drop its forecast milk payout this week from its current price of $6 per kilo of milk solids. The co-op has already lowered the price twice from its opening forecast.
