National Party leader John Key wants interest rates to come down and thinks Reserve Bank Governor Alan Bollard will make a move in the September quarter.
Talking about the economy today, Mr Key said it would be a very serious situation if New Zealand moved into stagflation -
the economy contracting and prices going up at the same time.
"We don't know officially that we are there yet but the growth outlook is looking very weak," he said.
"There is a lot of concern around the country. Businesses are really struggling to make ends meet, New Zealanders are becoming worried about their jobs, house prices are starting to pull back, the supermarket bills are pretty tough."
Mr Key said he would be surprised if Dr Bollard announced an interest rate cut this month, as some commentators have suggested.
"He may do, but my sense is that he's going to give it one more go and I think he will cut in the September quarter," Mr Key said on TV One's Breakfast programme.
"I personally think it's a good thing if he can cut interest rates.
"It's totally the preserve of the Reserve Bank governor and politicians should not be advising him what to do, but if interest rates come down ... that's a good thing."
The Treasury issued a report on Monday which said growth slowed sharply in the first quarter of this year and it expected further weakness in the June quarter.
"It is possible the economy has experienced a technical recession in the first half of 2008," the Treasury said.
Finance Minister Michael Cullen yesterday urged people not to "talk themselves into a recession" and said there had not been anything surprising in the Treasury report.
"We're talking about an economy that's running pretty flat," he told reporters.
"That's exactly the forecast we made in the budget, it was the forecast in the last Reserve Bank statement and it's what I told you some months ago."
- NZPA
