KEY POINTS:
Finance Minister Michael Cullen says the Government is closely watching the global economic situation and is well prepared - with low debt levels and strong fiscal surpluses - to respond if the situation deteriorates further.
In an article supplied to the Herald and released publicly by Dr Cullen today, he assesses the possibility of an American recession as "very real".
But while inflation remained persistent and the global situation was "cloudy at best", Dr Cullen said it was not yet clear how New Zealand's economy would be affected.
"Acknowledging that uncertainty is absolutely crucial," Dr Cullen said.
He argued that the circumstances that led to the 'not-yet-recession' in the US had mostly not occurred in New Zealand, and the New Zealand Government's strategies had been vastly different to its US counterpart.
"The United States Government has increased national debt, sent government accounts into deficit with large and continuing tax cuts, and significantly weakened its ability to prevent a real downturn," Dr Cullen said.
He added that the Reserve Bank had the authority to adjust its stance on interest rates quickly, if it needed to.
But the Government would also be able to take action if it needed to.
Dr Cullen said the Budget he was working on would be one that "keeps a long-term view in balance", and does exacerbate inflationary pressures.
