By VERNON SMALL deputy political editor
The Minister of Finance, Michael Cullen, is warning that economic growth in the March quarter may have been "low, zero or even mildly negative."
But his assessment is unlikely to divert the Reserve Bank from lifting interest rates in its Monetary Policy Statement this morning.
In a speech to the Auckland Regional Chamber of Commerce and Industry, Dr Cullen said his view of the economy's performance was personal. The Treasury had not finalised its forecasts for the June 15 Budget.
Speaking in Parliament later, Dr Cullen deflated hopes that the Reserve Bank would hold off raising rates. He did not expect the weakness to be prolonged and forecasts would show there was no evidence the economy was slowing in the medium term.
The Reserve Bank, which takes a medium to long-term view of the economy, was widely expected to lift official interest rates by 50 basis points to 6.5 per cent.
Dr Cullen said there had been lower March quarter employment, a fall in hours worked, a rise in the unemployment rate and sluggish retail sales.
"Before the headlines scream 'economy stalls' or even 'economy slumps' let us get a sense of perspective," he said.
The December quarter was unusual, with Millennium celebration preparations, the America's Cup, loose monetary conditions, excessive Y2K positioning and good climatic conditions.
"We farmed hard, worked hard, shopped hard and partied hard."
The economy was more balanced and robust than in the 1990s, with less concentration on consumption. Exports, investment and public sector activity were all contributing.
The Budget would build bridges to the business community, which he expected would welcome some planned initiatives. He said concerns about sagging business confidence and negative sentiments such as so-called "investor reticence" had been whipped up.
"I suspect some of the general mood is commentator, rather than experience, driven," he said.
Moves to nurture high-tech industry and encourage venture capital and technological innovation would be part of the Budget.
On the currency, he said overseas views were the exact opposite of domestic opinions that the dollar would rise to between US55c and US60c by year's end.
"My sentiment is that the current account deficit will hang over the currency, keeping downward pressure on the dollar."
So any monetary tightening was more likely to show up in higher interest rates.
His comments were blamed for currency market jitters that saw the dollar hit a 14-month low of US47.07c, before rebounding to 47.30.
Economy may not have been so energetic
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