NZ WILL BOUNCE BACK FROM GLOBAL SLOWDOWN

Fiscal Effects Take Somewhat Longer to Work Through Treasury's forecast of a rebound to dynamic positive growth by 1999-2000 "highlights the strength and flexibility of our economy today in the face of severe international shock," Treasurer Bill Birch said today.

He said the Asian crisis had created the worst international trading environment in more than two decades. Despite that, New Zealand's economy could be back into positive growth in little more than 12 months from now.

"Asia, which took 40 per cent of New Zealand exports last year, is suffering massive economic losses. The impact is spilling over into Russia, and is to some extent affecting emerging markets now throughout the world.

"Here in New Zealand, our liberalised economy has responded very quickly to those circumstances. Major movements in exchange and interest rates are galvanising producers into new export efforts and directions.

"As a result of that mobilisation of effort, Treasury projects New Zealand's economy, after contracting 0.5% this year, will rebound to growth at 2.9% in 1999-2000 and 4% in 2000-01," Mr Birch said.

"Those figures cannot be regarded as an isolated opinion. They are in line with the consensus of private sector and Reserve Bank forecasters.

"Lower growth and inflation short-term will, however, significantly affect the Government's operating balance throughout the next three years.

"The operating surplus now projected for 1998-99 is very small. Based on current policy settings, Treasury expects it to be followed by operating deficits in 1999-2000 and also in 2000-01," Mr Birch said.

"Confidence plays a crucial role in a recovery from the Asian crisis. The Government's policy response will therefore be centred on:

Additional opportunities to improve the medium-term outlook
The progress of the present programme of wide-ranging sector reform
Building confidence that the fiscal balance will move back into surplus.
"In coming months, the Government will work very closely with other political parties and Members of Parliament to develop initiatives which further improve the economic and fiscal outlook."

Mr Birch said those initiatives would be consistent with these objectives:

Improving New Zealand's competitiveness
Strengthening the medium-term fiscal position
Protecting high-quality social spending
Further improving opportunities for disadvantaged New Zealanders
Improving the quality of Government spending
Ensuring that low-income New Zealanders are not taxed to fund government spending for the benefit of high-income New Zealanders.