English: Economy still patchy

Finance Minister Bill English (left), with Treasury Secretary John Whitehead at the select committee yesterday. Photo / Mark Mitchell

New Zealand's economy is improving and the country could do better than expected in the May budget, Finance Minister Bill English said.

"It's quite possible we could end up with an economy in slightly better shape than people thought," English told Parliament's finance and expenditure select committee in Wellington yesterday.

In May, the Government forecast the economy would contract 1.7 per cent in the year ending March 3.

English will release forecasts on Tuesday that may be more upbeat as the global economy recovers, boosting commodity prices and business confidence.

"The picture is patchy," he said. "Confidence measures are quite high but we're yet to see whether they turn into real investment and real jobs."

Business confidence rose to a 10-year high last month, an ANZ National Bank survey showed. English said small companies were still struggling.

"I'm being told larger entities are doing okay but smaller companies are finding it pretty tough," he said.

"The banks aren't opening up to lend to them, they're stretching out their creditors and some are getting near to the end of the rubber band."

New Zealand's jobless rate rose to a nine-year high of 6.5 per cent in the third quarter and could reach 8 per cent next year, the New Zealand Institute of Economic Research forecast this month.

English said unemployment may not reverse quickly, which could hinder the economy's recovery.

"The economy has started to turn, but unemployment is still growing," he said. "Because companies have reduced hours rather than jobs, you're not going to find unemployment dropping off quickly."

- BLOOMBERG