Treasury's forecasts for economic growth have been revised downwards in the wake of ongoing turmoil in Europe and continued earthquakes in Christchurch.

Since the books were opened in October, today's forecasts show growth in the year to March 2012 is now expected to come in at 1.9 per cent, down from 2.3 per cent in October's pre-election fiscal and economic update.

Growth in the next year to March 2013 is now forecast to be 2.8 per cent, down from 3.4 per cent.

But it is forecast to be up a little to 3.8 per cent, from 3.3 per cent, in the following that.


The forecasts were released this morning as part of the Government's Budget Policy Statement (BPS) - a statutory requirement for the Government to spell out the shape of the May Budget to avoid nasty surprises.

The Government's operating balance is still on track to get into surplus in the 2014 -15 year but by just a whisker at $370 million.

The pre-election forecast for surplus in 2014 - 15 was for a $1.45 billion surplus.

Prime Minister John Key signalled in later January that that was going to be shaved well back to between $300 million and $500 million.

The weaker growth is put down to weaker trading partner growth as a result of the ongoing turmoil in Europe, Finance Minister Bill English said in the BPS.

"In addition, the earthquakes of 23 December 2011 and subsequent seismic activity have led the Treasury to push out the anticipated impact of some Christchurch rebuilding activity which was expected to occur this year."

Mr English said $6 billion of proceeds from the part-sale of five state-owned enterprises had been written into the books as the mid point between the estimated $5 billion and $7 billion proceeds.

That would help the Government to keep net debt to under 30 per cent of GDP.


Net debt is forecast to peak at 29.6 per cent of GDP in 2015 - 16 and is projected to be 20 per cent of GDP by 2020 - 21.

The BPS says the surplus is "vulnerable to further revisions is forecast tax revenue or expenses."

Speaking to reporters Mr English acknowledged that the past year of disasters had shown him that "anything can go wrong."

But the Government was committed to "tight expenditure management" in order to reach the surplus target.

New Zealand had to earn its way in the world not borrow its way as it had in the past 10 years.

"Budget 2012 will be about sticking to the plan the Government has set out for the next three years."