KEY POINTS:
Prime Minister John Key is promising strong measures to stimulate the economy in the face of Treasury forecasts that growth could grind to a halt this year.
He said today the international recession had deteriorated since December and New Zealand was closer to Treasury's "downside scenario" than it was at the end of last year.
"If that scenario plays out, the economy in 2009 will stand still," he said at a press conference after meeting senior ministers to discuss the latest situation.
"It also means that by the 2009/2010 period unemployment could be 7 per cent, rising to 7.5 per cent by 2011."
Mr Key said measures already announced, including tax cuts starting on April 1, would put at least $7 billion into the economy and there was more to come.
A raft of suggestions and proposals were discussed at today's meeting and those chosen for implementation would be announced on February 4, he said.
Mr Key indicated the focus would be on helping small and medium-sized businesses, and the Government was going to bring forward infrastructure projects to create jobs.
"We should use our balance sheet to take the rough edges off the recession ... we've got to make sure we provide as much stimulus to the economy as we can without blowing the budget even worse," he said.
"Obviously, the focus on government spending and expenditure control is a really important part of that."
Mr Key said New Zealand was in a much better position than many other countries to ride out the international crisis and he expected the economy to rebound.
"We see 2010 as a moderate year and 2011 as quite a strong year," he said.
"We can do well as we come out of the recession with a competitive exchange rate, goods and services that international consumers wanted and investment focused in the right places."
Mr Key emphasised the importance of maintaining business confidence, which has plunged in recent surveys.
"You can get to the point where all economic activity stops because people just talk themselves into a negative funk," he said.
"It's important that we don't get ourselves into a doom and gloom spiral downwards."
Today's Beehive meeting was attended by five senior ministers with economic responsibility and by the chief executives of the Treasury, the State Services Commission and the Department of Prime Minister and Cabinet.
Mr Key said he wanted them to be fully in the picture, because the bureaucracy had to be in step with the Government.
"We want them to know the rough and the smooth that ministers are dealing with, we don't want them to have to second guess us," he said.
Other points Mr Key made at his press conference included:
* The banking system was continuing to function and the deposit guarantee schemes put in place before the election were working;
* The Government was going to choose roading and other infrastructure projects for its stimulus package that could be started quickly;
* There would be important changes to the Resource Management Act and red tape would be cut to help businesses;
* The May budget would detail programmes which were going to be scrapped so that the money could be better used elsewhere; and
* Reserve Bank Governor Alan Bollard "obviously has room to move" and announce further interest rate cuts that would help the economy.
*The'Summit on Employment' will be chaired by NZX chief executive officer Mark Weldon.
- NZPA