KEY POINTS:
Finance Minister Michael Cullen says New Zealand is experiencing its longest period of sustained economic growth in three decades, but Treasury says householders will soon have to tighten their belts.
In its economic and fiscal update released alongside the Budget today, Treasury once again performs its annual task of saying it was too pessimistic the year before.
Treasury had predicted a significant slowing of growth in the last budget.
It upgraded this in December and does it again today.
"Since the Half Year Update (in December), Treasury has revised upwards the forecast for GDP for the year to March 2008 from 2.3 per cent to 2.6 per cent for real GDP growth," Dr Cullen said.
Treasury warns though, the growth is fuelled by a serious imbalance in the economy with a resurgence in domestic demand.
On the bright side however, this flows through to the Government coffers with $1 billion more revenue in 2007/2008.
Treasury said the brief period of slower growth was not enough to lower inflation pressure.
Inflation was expected to fall back to 1.7 per cent in September 2007, but rise nearer to 3 per cent again by March 2008,
"Short term interest rates are expected to be higher for longer than forecast in the Half Year Update," Treasury said.
The current upswing in growth was not expected to be sustained, allowing inflation to ease eventually and the exchange rate to come down.
These factors will work to choke household spending, push up unemployment slightly and slow income growth.
- NZPA
