Government's policy bonfire won't even come close to saving enough cash - Steven Joyce

More Government policies still need to go on the chopping block to bring New Zealand's economy under control, a former Finance Minister believes.

It comes after the world's largest credit rating agency, S&P, said New Zealand's credit rating could be pressured by "the persistently weak and worsening current account position".

Stats NZ figures released on Thursday showed New Zealand's current account deficit (meaning the country is exporting less than importing) weakened to 8.9 percent of GDP last year.

GDP, on the whole, contracted 0.6 percent over the December quarter, the figures showed.

S&P Australia, New Zealand and Pacific sovereign ratings director Anthony Walker told Bloomberg NZ's current account deficit was something it would be looking closely at for the Government's May Budget. 

Former National Finance Minister Steven Joyce, famed for claiming Labour's 2017 pre-election budget had a gaping fiscal hole despite multiple economists telling him he was wrong, told AM there should be some concern about S&P's comments.

"I think this has been coming for a little while; partly caused by COVID, partly caused by a deterioration in economic fundamentals and this is sort of like a warning shot," he said on Friday.

Given the rising current account deficit and contracting GDP, Joyce said the Government still needed to do more to rein in its spending. Despite Prime Minister Chris Hipkins' policy bonfire earlier this week, where he announced the dumping of multiple policies amid the cost of living crisis.

"We've got to do some things to turn it around," Joyce told AM host Melissa Chan-Green.

"I think they're going to have to be really surgical about this Budget and I'm not hearing it yet," he said of the Government.

"They're going to have to save a whole lot of money in areas where they don't need to be spending it and we're still not seeing that - we had, yesterday, the Energy Minister come out and talk about how they're going to spend a lot of money on Onslow [hydro scheme] and a whole lot of projects which are, at the very best, nice to haves. 

"What they have to do is… spend money on Hawke's Bay and Gisborne and Coromandel and so-on, they, frankly, have to relieve some of the cost of living pressures and they have to do all of that without lifting their spending, or that's going to worry the ratings agencies."

Finance Minister Grant Robertson said on Thursday the GDP drop was "a little larger than what was expected".

But Auckland University macroeconomist Robert MacCulloch said the latest figures should've come as no surprise to the Government.

"The Governor of the Reserve Bank said… 'We're engineering a recession' so they want interest rates to go up," MacCulloch told AM. "They want to do that in the name of reducing inflation so this is a deliberate policy."

Having adjusted its official cash rate forecast to a 25 basis point hike (down from 50bp) at the Reserve Bank's next meeting, ASB bank said on Wednesday the economy's path "is going to be lumpy over the coming quarters, with recession in New Zealand a distinct possibility".