Treasury forecasters have had their bulldozer out, pushing a big chunk of growth out of the year ahead and on to the following year and the year after that.
Updated economic forecasts issued with the Budget Policy Statement yesterday have the economy growing 2.8 per over the year to March 2013.
That is down from the 3.4 per cent forecast in October in the Pre-election Economic and Fiscal Update (Prefu) and the 3 per cent the Treasury foreshadowed in December even as the new Government was being formed.
It has a rosier view of the following year, however, revising up its forecast for annual average growth in gross domestic product in the year to March 2014 to 3.8 per cent, from 3.3 per cent in the Prefu.
If it eventuates, it will be the strongest growth for 10 years. Driving the deterioration in the near-term outlook are darker prospects for the global economy because of the travails of the euro area.
The Treasury expects the terms of trade - relative prices for the kinds of things we export as against the kinds of things we import - which has been a major impetus to growth over the past couple of years, to deteriorate sharply this year.
Export commodity prices have fallen 9 per cent from a peak in May last year and further falls are forecast because of weaker global demand, though only to levels which are still high by historical standards.
On the import side, oil prices are holding up "owing to threatened supply restrictions" - a reference to heightened geopolitical tension in the Gulf.
Meanwhile business and consumer sentiment have fallen and are now expected to result in lower growth in consumption and investment in the near term.
Like the Reserve Bank, the Treasury expects it to become more difficult and costly for New Zealand banks to raise money overseas, in light of the financial markets' re-rating of the riskiness of bank borrowing generally.
On the domestic front, the main change to the economic outlook since the Prefu is the pre-Christmas earthquakes in Christchurch, which are expected to push out the rebuilding by three to six months. Rebuilding Christchurch is expected to add around 1.25 percentage points a year to economic growth over the next five years.
Weaker growth this year will mean a slower improvement in the labour market. The unemployment rate, now 6.3 per cent, is forecast to fall to 5.7 per cent by March next year, compared with 5.2 per cent in the Prefu forecasts, with a correspondingly higher track over the two following years.
ANZ interprets its latest month's job advertisements data, out yesterday, as indicating that improvement in the unemployment rate is running out of steam.
The pick-up in growth now forecast for the year to March 2014 is predicated on the later rebuilding of Christchurch "and a more general recovery in the economy in line with an assumed rebound in trading partner growth", the Treasury says.
But it acknowledges this depends on outcomes for the eurozone crisis.