KEY POINTS:
The economy will tread water over the next couple of years, with no net increase in jobs or per capita economic output, according to the Treasury's latest forecasts.
It has taken a chainsaw to its Budget day growth outlook in yesterday's pre-election opening of the books - and
the latest forecasts were finalised before the latest bout of turbulence in world financial markets.
Economic growth in the year to March 2009 is now expected to be a barely perceptible 0.1 per cent, compared with the 1.5 per cent forecast five months ago.
It is expected to recover to 1.8 per cent the following year but that is still weaker than the 2.3 per cent previously forecast.
Cumulative employment growth over the next two years is zero, as is per capita GDP growth.
Wages growth is now expected to be stronger than anticipated at Budget time - 5.5 per cent in the current year, 4.3 per cent next year - but higher inflation, rising unemployment and a focus on debt reduction by households is expected to see little real growth in private consumption.
Growth in private consumption, which makes up more than 60 per cent of economic demand, is forecast to be nil in the current March year and just 0.6 per cent and 0.9 per cent over the the following two years.
Exports are expected to shrink in real terms in the current March year but then to grow at a rate close to 5 per cent over the following three years.
That may be seen as optimistic when global growth forecasts are being revised sharply down into recession territory.
The Treasury closed its economic forecasts in late August.
"We made some allowance for the likelihood of weaker world growth," Treasury secretary John Whitehead said. Events since then meant the risks were sharply skewed to the downside.
"But our central forecast would essentially be the same."
The Treasury has outlined a worse-case scenario. A more severe and persistent credit crisis would hit the economy though lower export prices, higher funding costs, increased risk aversion and investor uncertainty.
This would cut output by around 0.3 per cent in the current March year and 0.6 per cent next year.
After the debt-propelled binge of the mid-2000s, when spending grew faster than incomes and the debt-to-income ration soared, households have entered a period of consolidation - spending less and saving more or reducing debt.
Heightened international uncertainty could compress that process, as would a sharper correction in the housing market.
While the main forecasts expect house prices to fall 11 per cent from their peak late last year and go sideways until the end of 2010, under the deeper recession scenario they could be more like 25 per cent, the Treasury estimates.
A deeper recession would also mean less inflation and lower interest rates, fostering a recovery in both business and residential investment.
It expects the main way the international financial market turmoil to impact the local economy to be by increasing the cost of credit. It will also impair business and consumer confidence.
The terms of trade - relative prices for the kinds of things we export compared with the kinds of things we import - is expected to deteriorate.