ANZ National downgraded its forecasts for growth and unemployment on Monday, saying New Zealand's GDP would contract by close to 3% in calender 2009 and unemployment would rise to near 8%. It had previously forecast a 2% contraction in GDP. "No one likes to envisage these sorts of adjustments and outcomes," ANZ-National economists said. "But we can't go past the 500 pound gorilla sitting on our shoulder: it's called a current account deficit, and it needs to come down, in an environment where the earnings sector is constrained by the global environment." ANZ-National is forecasting an 8.9% current account deficit in the year to March 2009. "Our revised growth forecast is obviously "out-there" in so far as the mainstream is concerned. But we cannot go past the brutal economic reality that is unfolding," they said. "It is not just the economic data, which just like consensus forecasts, comes with a notorious lag. Instead, it is the growing innuendo and anecdotes behind the scenes as the process of global de- leveraging intensifies, with the resulting spillover into spending, profits (losses), jobs and asset prices," they said.

"(I)n so far as NZ is concerned, we are on a losing trifecta of a global recession, heavy reliance on offshore capital and the need to de-leverage. We can talk about prospective interest rate cuts, expansionary fiscal policy and a potential influx of returning kiwis all we like. But this is a major global credit event, and NZ needs to get the current account deficit down. The old "rules" no longer apply when you go through a one-in-eighty year credit event. The sacrificial lamb for a deleveraging economy is growth. There is simply no painless way out of it." "(T)he current downturn has now moved beyond firms experiencing lower sales and demand for their goods and services. Businesses have responded by reducing productive capacity. Given the obvious attention being paid to corporate balance sheets (last week's focus on a few corporates did not go unnoticed) businesses are now forced to respond. That means cutting investment and fewer jobs. And remember, this economic cycle is not fundamentally about corporate balance sheets. It is primarily about household de-leveraging, a process that has only just started, which will only accentuate the demand aspect as well." "Lastly, the current situation is not only a reflection of economic dynamics. It is rapidly becoming a symptom of game  theory, as behavioural aspects to the economic cycle take over. The most widely referred to example of game theory is the prisoner's dilemma. The best solution is for everyone to hold their breath (co-operate) and ride through the biggest global downturn of our time. In short, don't pull down the shutters for fear of making it worse." "Unfortunately, when you look at the payoff matrix from game theory, the rational choice leads the two players to defect (in an economic sense, "react" to try to gain a strategic advantage) even though they would benefit more if they played co-operatively. And so it extends to the economy."