Economic turmoil emanating from Europe has prompted the Treasury to drop its forecast for growth in 2013 from 3.4 percent to 3.0 percent.
The earlier forecast was only weeks old, and was released in its pre-election fiscal and economic update in late October.
The Treasury view is still more optimistic as the forecast in the latest Quarterly Predictions from the New Zealand Institute of Economic Research, which has consistently picked lower growth since 2008, and forecast 1.5 percent growth in calendar year 2012 last week. Treasury's forecast is for the 12 months ended March.
Prime Minister John Key shrugged off the Treasury growth forecast downgrade as "not overly dramatic" and noted NZIER was always at the bottom of the forecast range in recent times.
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"It is likely that the growth will also be lower in subsequent years, but it is too early to judge how material those impacts might be," the latest monthly update from the Treasury said. "We continue to expect the Canterbury rebuild to begin in earnest in the second half of 2012 and to provide an offset to global weakness."
The government economic policy agency also warned it may lower its revenue forecasts when it publishes its Budget economic and fiscal update early next year, again because of weak global growth.
In the last few months, the Rugby World Cup had provided a useful boost to retail and accommodation spending, but the underlying domestic economy remained subdued as households borrowed less and saved more.
"Household credit growth in the three months to Oct. 31 recorded its smallest value increase in over 20 years and, when adjusted for the increase in house prices over that time, the increase is well below the previous record low in the early 1990's", also a time of prolonged recession.
However, household deposit growth was strong, and was helping New Zealand banks by requiring less short term borrowing in offshore markets, which have become less easily accessed as the Eurozone crisis deepens.
The Treasury says the "strong start to the dairy season is yet to be reflected in higher export volumes, pointing to rising inventories in the current period and higher exports later in the season."