Key Says N.Z. Budget This Week Will Assume Euro-Area Recession

New Zealand’s latest budget forecasts Europe sliding into a recession, a downturn that doesn’t appear deep enough to derail the Pacific nation’s projected 2015 surplus, Prime Minister John Key said.

The Treasury Department’s predictions “already factor in a good deal of weakness and volatility in Europe, including a sharp recession across the euro area,” Key told reporters in Wellington today ahead of the May 24 budget release. “It’s true the risk of something worse happening in Europe has increased. We are closely monitoring developments.”

Key’s government is pledging spending restraint to return to a budget surplus in 2014-15 from a record shortfall in the year ended June 30, 2011. Eliminating deficits will help reduce debt and preserve the nation’s credit rating, which was cut to AA by Standard & Poor’s in September.

“The last thing we want to do is to abandon that target unless we really have to,” Key said. “I’ve always said there’s flexibility there if we absolutely need it and the global economic situation demands that, but I don’t think that’s the situation we are facing at the moment.”

Key said Europe has been in situations like this before without sparking a global slump. New Zealand wants to maintain its fiscal discipline to stay on the list of nations that are seen as a good risk, he said.

“I’m as optimistic as you can be” on the outlook for Europe, he said. “It is more volatile and risky than it was three months ago. That doesn’t mean the situation won’t blow over.”

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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