The fiscal implications around the global growth track are the most vulnerable point in Treasury's Pre-Election Fiscal Update, Westpac senior economist Michael Gordon says.
"Lower interest rates for years to come, lower imported inflation, only a modest hit to domestic growth means that the downgrade to the global outlook comes across as a net positive for the domestic fiscal update, which seems a stretch."
The Prefu devoted a chapter to a down-side scenario with a more severe global downturn, with Treasury putting a 20% chance on something at least that bad happening, he said.
The Prefu, finalised on October 18, hit much the same marks as the Budget in May.
The weaker world outlook relative to the Budget was seen as being largely offset by a stronger-than-expected starting point for the domestic economy, a larger and longer boost from the rebuild of Christchurch and some favourable consequences for New Zealand from the global situation, Mr Gordon said.
"We see the latter factor as the most significant down-side risk to Treasury's forecasts and there is still a chance that next year's Budget will demand even tighter caps on spending growth - but not for now. It appears that this year's election pledges will be made against the backdrop of a fiscal position that is returning to a sustainable track."
The "fairly benign assessment" would allow the National Government, if re-elected, to continue with the fiscal plans it outlined in May's Budget, Mr Gordon said.
Labour has persisted with its claims the Government is muddling through the economic downturn without a plan to fix the economy.
Finance spokesman David Cunliffe said the Prefu was written before the double downgrade by rating agencies Fitch and Standard & Poor's and confirmed again that National had failed to drive the economy forward.
"Things were bad when the Budget was delivered and are still bad today."
The Prefu had not taken account of the higher interest costs that would result from the credit downgrades, he said.
"Treasury could find nothing in government policy that would lift us above the gloomy baseline and, in fact, it highlights down-side risks from here."
Labour had a long-term economic plan that gave relief to New Zealanders, a strong export-led economic recovery and a savings policy that guaranteed a good future for New Zealand's future, Mr Cunliffe said.
