Global sentiment remains volatile and downside risks have increased for the economy, according to Treasury in its latest monthly economic indicator report.The government's economic adviser expects the economy will continue its relatively gradual recovery
Global sentiment remains volatile and downside risks have increased for the economy, according to Treasury in its latest monthly economic indicator report.
The government's economic adviser expects the economy will continue its relatively gradual recovery in the year ahead but said near-term growth may be weaker than forecast.
"Our view as to the most likely path the economy will take remains consistent with the budget forecasts. However, downside risks are significantly higher and near-term growth likely to be a little weaker than forecast," the Treasury said.
Real gross domestic product (GDP) increased 0.6% in the March quarter. It was the fourth consecutive quarter of expansion but growth was slightly weaker than the 0.8% forecast in the May budget.
Treasury said growth in the March quarter came from the primary industries and non-food manufacturing, with services flat.
Early indicators of growth for the June quarter, including retail sales, suggest continued weakness in private consumption, while exports are likely to ease on the back of reduced dairy exports.
Factors such as these suggest growth will be a little weaker than forecast.
The recovery is expected to continue to be relatively gradual, with the level of real GDP per capita still below its pre-recession level.
The Treasury detects a more cautious approach by households given high debt levels, changed perceptions about the riskiness of high debt levels and a reduction in credit availability at the more speculative end of the investment spectrum.
Deteriorated fiscal positions internationally, necessitating large-scale fiscal consolidation in many countries, are also likely to constrain future growth in the global economy.
Higher terms of trade, along with a falling investment income deficit, have contributed to a sizable narrowing in the annual current account deficit to 2.4% of GDP.
Treasury expects the deficit will expand and New Zealand's high level of international indebtedness makes the economy vulnerable to shifts in investor confidence in a world less tolerant to risk.
