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s responsible for all decisions of the Government.

1.2 BACKGROUND.

New Zealand has a small open economy which operates on free market principles. It has sizable manufacturing and service sectors complementing a highly efficient export-oriented agricultural sector. New Zealand is highly dependent on the primary sector with commodities accounting for around half of total goods exports. Exports of goods and services account for around one third of real expenditure GDP. New_ Zealand's high proportion of winter sunshine hours and considerable rainfall provide an ideal resource base for pastoral agriculture, forestry, horticulture and hydro-electricity generation. Hydro-electricity provides a relatively cheap source of energy and has allowed the development of energy-based industries such as aluminium refinement. New_ Zealand is also a popular overseas visitor destination and tourism is an important source of export income. Over the last quarter of a century, the New Zealand economy has changed from being one of the most regulated in the Organisation for Economic Cooperation and Development (OECD) to one of the least regulated. The minority National Party government elected in November 2008, and re-elected in November 2011,aims to live the long-term performance of the economy through six key policy drivers: a growth-enhancing tax system; better public services; support for science, innovation and trade ;better regulation, including regulation around natural resources; investment in infrastructure; and improved education and skills.

RECENT ECONOMIC PERFORMANCE AND OUTLOOK
Between 2000 and 2007, the New Zealand economy expanded by an average of 3.5% each year as private consumption and residential investment grew strongly. Annual inflation averaged2.6%, inside the Reserve Bank of New_ Zealand's 1% to 3% target range, while the current account deficit averaged 5.5% of GDP over this period.

The New Zealand economy entered recession in early 2008, before the effects of the global financial crisis set in later in the year .A drought over the 2007/08 summer led to lower production of dairy products in the first half of 2008. Domestic activity slowed sharply over 2008 as high fuel and food prices dampened domestic consumption, while high interest rates and falling house prices drove a rapid decline in residential investment. The outlook for the New Zealand economy deteriorated sharply following the intensification of the global financial crisis (GFC) in September 2008. Similar to experiences across advanced economies, business and consumer confidence plummeted as uncertainty dominated the global financial and economic environment. In addition, local banks' access to funding in overseas markets was temporarily curtailed at the height of the crisis.

GROWTH
In total, New Zealand experienced five quarters of negative economic growth between the March quarter 2008 and the March quarter 2009, totalling 3.7% of real GDP. The relative shallowness of the recession compared favourably with other nations in the OECD, with New Zealand seventh least affected out of the 33 member nations. Economy then grew for five consecutive quarters up tomid-2010, totalling 1.6% of real GDP. The recovery was led by exports, with strong demand from major trading partners, Australia and China. _Is was helped by historically-high prices for New Zealand's commodity exports, which _owed v throug