The Treasury's latest monthly economic indicators provided a mixed view of the economy and reinforced risks around the shape of the recovery, Finance Minister Bill English said yesterday.
"As we have said, there are some positive signs as we emerge from the recession, but the road to recovery will be bumpy."
Treasury released its latest economic indicators yesterday, the main points being. -
• The labour market weakened further in the September quarter.
• Other economic indicators pointed to ongoing economic recovery.
• World economy strengths but global financial markets cautious about recovery.
The indicators have been published a week before the Government's half-year fiscal update and the Budget Policy Statement.
Both are expected to contain improved economic growth forecasts.
Treasury said in the executive summary that the labour market weakened in September as firms responded to weaker demand, leading to an unemployment rate of 6.5%.
"With slack in the labour market, it may take time for the number of people employed to increase, even as economic growth picks up."
The deterioration in the labour market had had a material effect on the Government's tax revenue, Treasury said.
Mr English said the Government understood the challenges facing households and businesses.
"That's why we've taken a comprehensive set of measures to firstly help New Zealanders through the recession and to then build economic growth over the next three to five years. It will take time for the number of people employed to increase, even as growth picks up."
That meant households would respond reasonably cautiously to signs of recovery, he said.
As seen in the Government's financial statements for the first four months of the financial year, the deterioration in the labour market and challenging business conditions were also having a significant impact on Government tax revenue.
Figures released on Friday showed corporate tax revenue was down $1 billion, or nearly 40%, in the four months ended October compared with the previous corresponding period.
Commenting on other details in Treasury's release, Mr English said it was encouraging that business confidence had improved, with firms' expectations of their own trading conditions at their highest level since 2002.
The latest economic indicators confirmed there were risks surrounding the recovery, he said.
"In addition to weak employment and salary and wage growth, a fall in capital goods imports in the past year points to weak business investment activity in the coming year."
With that in mind, the Government remained focused on doing everything it could to support existing jobs and giving businesses the confidence to invest and create new jobs, Mr English said.
