KEY POINTS:
Prime Minister John Key is promising to help small businesses survive and avoid staff lay-offs as part of his response to a prediction of soaring unemployment.
The Treasury is now forecasting that the number people out of work will almost double, from 94,000 today to 170,000 by 2011, and that Government debt will expand to almost 40 per cent of GDP by 2013.
Yesterday, Mr Key said he would make a speech next month outlining measures to boost business confidence and help small to medium businesses through the downturn.
He said officials had also given the ministers a list of infrastructure projects that could be started quickly.
He would not give any details yesterday, but said the list would be made public soon.
Mr Key received the first Treasury update of the year during a meeting with ministers holding economy-related portfolios and with heads of main departments.
He said it showed what the Government had already expected - that the international situation had deteriorated and the Treasury's most pessimistic predictions from last year were now likely to prove correct.
The Treasury had forecast no economic growth this year, and that unemployment could reach 7 per cent, rising to 7.5 per cent by 2011.
Debt was also expected to grow - under the Treasury's December "downside scenario", debt is forecast to grow to nearly 40 per cent of gross domestic product in 2013.
Labour leader Phil Goff said the forecasts were dire, but not surprising.
"We can not complacently accept that is inevitable. We need measures that will create job opportunities."
He said helping smaller businesses was important, as they made up 96 per cent of New Zealand companies.
"It makes sense to focus on doing something for smaller businesses."
He criticised National for not including Labour in its jobs summit, to take place late next month.
Mr Key will host the summit - a gathering of business heads, unions and bankers. It will be chaired by NZ Stock Exchange chief executive Mark Weldon.
Mr Weldon and NZ Institute chief executive David Skilling issued a discussion document before the election outlining their prescription for the economy.
It included tax breaks and encouraging investment in New Zealand.
Mr Key said the latest unemployment forecasts made it critical for that summit to be more than a "talk-fest".
He did not expect all the suggestions raised at the summit to be adopted, but he expected some would be investigated closer and taken up.
The Treasury outlook also puts increased pressure on departments to make savings as the Government tries to stave off the possibility that the Standard and Poors rating agency will downgrade New Zealand's credit rating.
Mr Key said it was a "balancing act" and while it was standard practice to use a healthy balance sheet to support the economy, it should not result in a "long-term diet of debt".
He said the S&P warning made the Government's review of state spending more critical, and departments had been sent a clear message to seek for savings.
Ministers at yesterday's meeting were Finance Minister Bill English, Economic Development Minister Gerry Brownlee, State-Owned Enterprises Minister Simon Power, States Services Minister Tony Ryall and Communications and Transport Minister Steven Joyce.
