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Govt eyes surplus despite weaker growth

By Peter Wilson, NZN Political Writer

The government expects to achieve a $66 million budget surplus in 2014/15, down from the anticipated $197m because the Treasury is forecasting slightly weaker economic growth next year.

The half-year economic and fiscal update, released on Tuesday, shows the economy growing by 2.3 per cent in 2012/13 compared with the May budget's forecast of 2.6 per cent.

Growth in 2013/14 is forecast at 2.9 per cent, slightly up on the budget's 2.4 per cent, and in 2014/15 it is forecast at 2.5 per cent, slightly lower than the expected 3.1 per cent.

Inflation and interest rates are expected to remain low as households continue to spend cautiously.

The Treasury acknowledges that the high exchange rate will be a drag on the economy throughout the forecast period.

Finance Minister Bill English says the government's plan to deliver a faster growing economy, more jobs and a return to surplus is on track.

"After 2014/15 surpluses are forecast to increase and debt is forecast to fall," he said.

"Despite our growth forecasts being slightly weaker than in budget 2012, New Zealand is expected to grow more strongly over the next four years than the Euro area, the United Kingdom, Japan and Canada."

The Treasury expects unemployment to gradually decrease after this year, and forecasts the rate will be 5.9 per cent in 2015 compared with the latest quarter's 7.3 per cent, which was higher than expected.

The government said the 7.3 per cent was a blip, and Mr English says he expects the Treasury's forecast figures will "jump around" a lot.