KEY POINTS:
The economy may benefit from a temporary increase in consumer spending in the fourth quarter as a result of income tax cuts and lower food and energy costs, the Treasury Department says.
"Private consumption will temporarily increase in the quarter," the department said in a report published on its website.
Still, employment would decline and investment in home construction would be substantially weaker next year, constraining economic growth, it said.
Reserve Bank Governor Alan Bollard last week said New Zealand might be emerging from a "shallow" recession and faced a gradual recovery in 2009. He has cut the benchmark interest rate by 3.25 percentage points since July to kick-start spending.
The Government will announce a package of further income tax cuts starting on April 1 and spending programmes to stimulate the economy. Prime Minister John Key yesterday said he expected people would spend some of the tax cuts.
"The Reserve Bank governor thinks the tax cuts are coming at the appropriate time and are an important stimulus for the economy," Key said.
"I've no doubt people will spend the bulk of it but I'm not going out on a national spending campaign."
The economy fell into a recession in the first half of the year and probably contracted in the third quarter, the Treasury said. The report contained no detailed forecasts.
The labour market was weakening and employment "will fall sharply" in the fourth quarter, it said. The jobless rate rose to a five-year high of 4.2 per cent in the third quarter and may increase to 4.5 per cent in the fourth quarter.
- BLOOMBERG
