Finance Minister Bill English says key economic markers due for release this week will show the economy has shrunk by 2 per cent in the last calendar year.
Mr English took the rare step of foreshadowing the official release of statistics on key economic indicators by raising them in Parliament,
saying the balance of payments deficit was now about 9 per cent of GDP - "one of the worst in the OECD".
The latest gross domestic product statistics would also show the economy had contracted by about 2 per cent compared with a year earlier.
The statistics on both are due to be officially released later this week.
Mr English said yesterday they would show the Government was facing the "challenge of chronic twin deficits".
The balance of payments deficit was up from 8.6 per cent in the last quarter.
He said the GDP figures for the December quarter were likely to show a negative number compared with the previous quarter. If so, it will be the first time since 1990 that New Zealand has had four consecutive negative quarters.
"But we're looking ahead. We know we're in a recession we've got to take all the policy measures we can to get us through and out the other side."
Mr English said although the outlook for fiscal deficits had worsened "considerably" since a fiscal update at the end of last year, the economy was in a "mixed position".
There were some long-term strengths, including a flexible exchange rate and labour markets, a healthy banking sector and relatively low debt and unemployment.
Mr English's comments follow reports that the International Monetary Fund was predicting New Zealand's economy would shrink by a further 2 per cent this year.
Mr English said it was in line with the Government's own expectations, "and our expectations have been dropping consistently over the last few months".
"It will certainly make a further hole in the Government's books. When the economy drops by that much with low inflation we collect quite a lot less tax and that's going to put pressure on our spending."
He said the IMF had a "pretty gloomy view" about what was happening globally and expected New Zealand would be affected by it.
- NZPA
