Economic picture to get darker - English

The grim picture of the New Zealand economy is going to get darker this week, Finance Minister Bill English said today.

Mr English told MPs that two key economic indicators out this week showed New Zealand faced a "challenge of chronic twin deficits" in the government accounts and balance of payments.

"This week's statistics will show that the balance of payments deficit for 2008 is in the order of 9 percent of GDP - one of the worst in the OECD - and this week's GDP statistics will show that output declined in the December quarter to around 2 percent lower than a year earlier and that is the economy will have contracted by about that much," Mr English said.

Mr English said the government deficit was going to be "considerably" worse than that forecast last year.

There was some bright spots though as well

"The economy starts from a mixed position. It has some long term strengths including a flexible exchange rate and labour markets, a banking sector that has remained healthy and relatively low debt and unemployment levels."

The Dominion Post reported today that the International Monetary Fund was picking that the New Zealand economy would shrink by 2 percent this year in the global crisis it has dubbed the Great Recession.

The IMF believed New Zealand was relatively better placed than other developed countries as the world economy shrunk for the first time in 60 years and the large economies contracted as much as 3.5 percent.

Mr English told journalists that the IMF's predictions were in line with the Government's expectations.

"The IMF has a pretty gloomy view of what's happening in the rest of the world and they expect we will be affected by that."

If the economy did shrink by 2 percent that would put further pressure on the Government's books, he said.

Assuming gross domestic product contracted in the December quarter, it would be the first time GDP had declined for four consecutive quarters since 1990.

Data available suggested the decline in economic activity had accelerated in the December quarter.

GDP contracted 0.4 percent in the September quarter following falls of 0.3 percent in the March quarter and 0.2 percent in the June quarter.

For the year to September, GDP was up 1.7 percent.