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One thousand people a week are joining the dole queue as the recession bites, says Prime Minister John Key.

Statistics New Zealand is to release GDP data on Friday that will show how the economy fared in the first three months of this year.

Yesterday, Mr Key said the Reserve Bank believed the economy had shrunk by 1 per cent in the first quarter, but he would be surprised if this were the case as he felt the economy had performed more strongly than some expected.

But the effects of the credit crunch were flowing through to the real economy and this meant 1000 people a week were signing up for the unemployment benefit, half of them in Auckland.

The true unemployment figure would be higher as many others would not be applying for the dole.

Mr Key defended the Government's record in protecting and creating jobs.

Ideas were flowing through from the Job Summit and other areas, and these would make a difference. He cited the purchase of Queens Wharf and tourism marketing as examples.

He believed the state of the economy vindicated the decision to have a "rolling maul" and not a "big bang" approach to stimulating the economy.

The credit crunch that caused the worldwide economic recession was now easing, with the "chasm" facing the banking sector late last year closing, he said.

There were still issues in the financial sector and the pain of the economic recession to go through, Mr Key said.

One concern was that if the exchange rate rose too rapidly it would hurt exporters and fuel consumer spending due to cheaper imports.

"It would run the risk of derailing the recovery process," Mr Key said.

Asked about banks and the state of interest rates, the Prime Minister did not repeat past criticisms.

Past interest-rate cuts had been passed on as the Reserve Bank eased monetary policy, he said, but the last round of cuts to the official cash rate had not been passed on by banks.

"There is a limit to what monetary policy can achieve and we are probably at that limit."

- NZPA