KEY POINTS:
Finance Minister Michael Cullen thinks the worst of the economic recession is probably over - and that Labour's tax cuts will help to push the economy back into positive growth just as voters head to the polls.
Though the country is not yet officially in a technical recession
- defined as two consecutive quarters of negative growth - one is widely expected to be declared on September 26 when the June quarter's economic data are released.
It now appears that could also be followed up with a third period of negative growth in the September quarter, before the economy begins to recover into positive territory in the final December quarter.
Dr Cullen yesterday said he was "very confident" the economy would start to pick up in the fourth quarter as Labour's October 1 tax cuts came into effect, because the drought was over and the weakening New Zealand dollar would help the export sector.
"There's a lot of factors coming together there," Dr Cullen said. "I think probably the worst is over now."
The declaration of an economic recession inevitably carries political risk for any Government and Labour is aware National may try to argue in the election campaign that it is a better economic manager.
With that in mind and knowing that households have been feeling the pinch from high mortgage rates and rising food and petrol prices, Labour will be pleased that Reserve Bank Governor Alan Bollard cut interest rates by a surprise half a per cent yesterday.
The scenario of heading into election day with mortgage rates on the way down and more money in voters' pockets from tax cuts and associated boosts to Working For Families and superannuation payments will be welcomed by Labour.
Dr Cullen said yesterday's cut in interest rates would help the economy rebound and he pointed to improving business and consumer confidence surveys as indicators that the country was probably through the worst.
"People start to feel that they can see the end of this," Dr Cullen said. "And it's much less scary when you're going through the process and can see your way coming out, than when you're going into the process of a slowdown."
However, National is less convinced that the worst of the recession has passed. The party's finance spokesman and deputy leader, Bill English, last night said it was not yet clear if the economy had been through the bottom of the recession.
Mr English said the Reserve Bank had forecast an outlook that was concerning, and any short-term boost from tax cuts would be welcomed.
"Like everybody else, it's uncertain [to us] where the bottom of this thing is," he said. "But we are confident that if we can get the Government changed and get a focus on growth-enhancing policies, then we'll be able to get through the recession and back on to a reasonable growth path."
New Zealand First - a campaigner for changes to the monetary policy framework - welcomed the Reserve Bank's interest rate cut. However, the party emphasised it would continue to push for changes to the framework.
