KEY POINTS:
Finance Minister Michael Cullen is standing by his comment that it would be foolish to rule out a recession - but has now added that he does not think one will actually happen.
Dr Cullen was criticised yesterday by the National Party for saying on Tuesday that he
could not rule out a recession given concerns about a drought, the weakening housing market and international financial turmoil.
Dr Cullen said yesterday that he did not regret what he had said, but wanted to emphasise that the comment did not mean he expected a recession.
"If you had asked me the question yesterday 'did I think there was going to be a recession', the answer was probably not," Dr Cullen said.
Political argument over the economic outlook has heated up over the past week as the US economy falters, and as some economists have become less optimistic about where New Zealand is heading.
Adding to the concern was a report yesterday by the Ministry of Agriculture and Forestry which estimated the impact on farmers of the current drought at $1.24 billion, through falls in production and increases in unexpected costs such as feed supplementation.
But yesterday in Parliament, National was more interested in talking about interest rates as it seized on a recent comment by Prime Minister Helen Clark that mortgage rates were not going through the roof.
In a radio interview with the Farming Show two weeks ago, Helen Clark discussed differences in domestic policy between Labour and National.
A transcript of the interview shows she suggested plans by National would require big cuts to the public service and would see "your mortgage rate going through the roof because the system couldn't stand it".
The presenter responded: "It's going through the roof with your lot."
But the Prime Minister dismissed that: "Well no, no, it's not going through the roof."
Questioned again, she went on to explain that inflation was "just right on top" of the Reserve Bank's target band, and was "similar to where things are" in Australia.
She said New Zealand's banks were being buffeted by fallout from the US sub-prime lending crisis, not by something driven out of New Zealand. National's deputy leader Bill English yesterday described Helen Clark's comment as "one of the least informed, most off-hand, out of touch" things a Prime Minister could say in the current environment.
"There isn't a time when that could be more wrong," Mr English said.
New Zealanders who owned homes, had mortgages, credit card debt or overdrafts knew that interest rates were going through the roof, he said.
Asked yesterday by the Herald whether she stood by the comment or wished to add anything to it, Helen Clark's spokeswoman said the Prime Minister was "well aware" that interest rates had increased.
The Prime Minister argued the Labour-led Government had run strong books with low debt - while National would borrow more and the impact of that would be mortgage rates going through the roof.