Monday, the New Zealand's Treasury said in a report that it expects the real GDP to fall around 1% in the March quarter. The Treasury noted that demand and output declined again in the first quarter leading to decreases in capacity utilization and the demand for labor.

Output in major trading partners of New Zealand, weighted by their share of exports is forecast to shrink around 2.5% this year. Trading partner growth is expected to return in 2010, but at 2% or less, would be well below what could be considered the normal rate. The Treasury said the prospects for global recovery depend on the rate of progress towards returning the financial sector to health.

Regarding consumer price outlook, the Treasury forecast inflation to continue to drop over the medium term in New Zealand, after easing to 3% in the year to March 2009.

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