NZ economy faces stagnation

WELLINGTON (New Zealand) - NEW Zealand's battered economy faces a year of stagnation with no recovery in sight until 2010, the government said on Thursday, as it warned tens of thousands of workers will lose their jobs.
Prime Minister John Key, a millionaire former currency trader, pledged an economic stimulus package worth 9 billion New Zealand dollars (S$7.19 billion) over the next two years to minimize damage from the international economic crisis.

The country's gross domestic product contracted in 2008, but official figures showing by how much have yet to be released. The economy is expected to be at a standstill in 2009.

Among government moves will be NZ$1.5 billion of highway, housing and infrastructure spending during 2009-2010.

These projects come on top of tax cuts and already-announced plans to liberalize the economy, reform regulations and revive confidence in a deeply negative business sector.

'It's vital we don't get into a gloom and doom downward spiral,' said Mr Key, who spoke after a special meeting of economic ministers.

New Zealand is in a much better position than many other countries to deal with the international economic crisis, he said.

This includes the central bank having more room to cut lending rates, with the bank's official cash rate currently at 5 per cent after being cut by 3.25 percentage points since last July.

Latest forecasts from the government's Treasury Department showed up to 200,000 people may lose their jobs by 2011, Mr Key said, which would see the unemployment rate climb to 7.5 per cent from 4.3 per cent now.

Government debt was forecast to rise from its current level of 18 per cent of GDP to 40 per cent by 2013.

The government would move to create faster economic growth and higher productivity to 'change that trajectory' of rising debt, Key said.

He said the government would run large cash deficits for two years but would try to avoid triggering a downgrade of New Zealand's international sovereign credit rating.

Credit agency Standard and Poor's on Monday said it had placed New Zealand's rating on negative credit watch as the country's foreign debt levels grow and export income slows. -- AP

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