Key Points:

The economic outlook is not so bad.

At least not so bad that it can't get worse.

It probably will. The Treasury finalised economic forecasts underpinning yesterday's pre-election opening of the books in late August, before the latest bout of extreme financial market turmoil that has forecasters now predicting a global recession.

That imparts a bit of a "yeah, right" quality to the export-led recovery it expects to kick in next year.

The domestic picture is as grim as the external one. No net increase in jobs over the next two years.

Stronger growth in wages will be almost swallowed up by higher inflation and, with households focused on reducing debt, little will be left for firms chasing the consumer dollar. Private consumption growth is expected to be zero in the year to next March and feeble the two following years.

With the household and export sectors up against it, the onus is on Government spending to provide some propulsion to the economy.

But can we afford it?

Even without any election-related spending, the latest accounts look like they mark a historic turning point.

After 14 years of surpluses, we now face nine years of deficits.

After a sustained reduction in public debt - under Governments of both stripes - it is now set to rise relentlessly over the next 10 years, well before the worst of the fiscal pressure from retiring baby-boomers hits.

Michael Cullen is right to point out that even after the forecast deterioration, which he suggested no finance minister should be comfortable with, New Zealand's Government accounts would still look good by international standards.

Unfortunately our external accounts - large trade and current account deficits and net international liabilities of nearly 90 per cent of GDP - are really bad by international standards.

We are up to our nostrils in debt to the rest of the world at a time when creditors globally have become a lot less indulgent. And now the Crown accounts have turned red too.

Will the credit-rating agencies and financial markets care? Will we be punished for running the dreaded "twin deficits" - fiscal and external?

"No," one trader said. "They don't care. Right up until the point where they decide they do."