By Alex Tarrant
Prime Minister John Key is confident Treasury's Budget forecasts will hold up in the face of renewed financial market volatility which has flared up since they were finalised last month.
He told media in Christchurch today that Treasury was taking into account the turmoil in Europe, and that it had already downgraded its global growth forecasts before the latest bout of volatility this month. The government would not be making adjustments based on events over the last two weeks, and was making decisions based on the next few years, not on daily and weekly reports.
While Finance Minister Bill English is set to reveal Budget 2012 next Thursday, the economic forecasts in the Budget would have been completed before the end of April, raising questions of how the latest round of how the latest events in Europe would have affected the projections.
See yesterday's article, Latest Euro turmoil, commodity price and NZ$ falls right at the wrong time for Treasury and its Budget 2012 forecasts.
A failed Greek election on May 6, and an election in France seen as an anti-austerity vote, have been the main drivers of the New Zealand dollar falling by seven percent against the US dollar since the end of April.
Prices of dairy products sold through Fonterra's on-line auctions hit a three-year low this week, and the general level of New Zealand's commodity export prices is at an 18-month low according to ANZ's latest commodity price index released at the start of May.
New Zealand's unemployment rate unexpectedly jumped to 6.7% in the first week of May, and some bank economists have been pushing out their expectations for the next hike in the Official Cash Rate into 2013 due to global volatility, a slow Christchurch rebuild and sluggish local data for the March quarter.
Conservative Budget
Key said the government had put together a conservative budget which "reflects the times."
"That is, we’re not spending any new money, we’re asking New Zealanders to make some adjustments to what they’re doing, and we think rightfully so, because we don’t want to put more debt on the New Zealand economy," Key said on Thursday afternoon.
“I think that’s the right thing to be doing, and we wouldn’t be adjusting that on the basis of anything that’s happened in the last two weeks," he said.
The falling New Zealand dollar and commodity prices were reflecting the international turmoil, and were to be expected given that volatility.
“We live in a dynamic world, so those numbers constantly change as we know. Clearly there’s more stress in Europe at the moment, and that’s putting pressure on the international financial markets. You can see that with the stock market down and commodity prices being down," Key said.
“But overall, we’re very confident about where New Zealand’s going. I think it’s important to understand, we need to run the country not on a minute by minute, week by week basis, but by what we think are the right decisions over the course of the next 12 months and the next few years.
"And we can’t get spooked by the fact that the Greeks can’t make up their mind about who they want to be their government," he said.
“We factor in a number of things. Treasury takes account of what’s happening in Europe. We downgraded our global forecasts some time ago. The position might look completely different in a month’s time as well."
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