(Adds detail, context)
WELLINGTON, Dec 15 (Reuters) - The New Zealand government forecast on Tuesday it will run a budget deficit in the current financial year, before balancing the books again in the year to June 2017.
Presenting the government's half-year economic and fiscal update, Finance Minister Bill English said: "The books are broadly in balance, so in the immediate future we will not distinguish between forecasts of a small negative or a small positive."
English said Treasury forecasts were "just forecasts" and he was still optimistic a surplus might be possible in the current financial year.
The Treasury forecast a budget deficit of NZ$401 million for the year to June 2016 versus a NZ$176 million surplus estimated in the annual budget last May. For the year to June 2017, it forecast the surplus at NZ$356 million, versus an earlier estimate NZ$1.476 billion.
Secretary to the Treasury Gabriel Makhlouf said New Zealand's economy was now expected to be weaker than forecast at the budget in May because of anaemic international economic conditions, falls in dairy prices, and a softening in domestic demand.
"Growth has slowed and is expected to remain weak in the near term," he said. Weaker growth in China was affecting New Zealand's economy, and he expected only a gradual recovery in dairy prices.
International prices for dairy products, New Zealand's leading merchandise export, have a significant impact on its terms of trade.
The updated forecasts in the half-year economic and fiscal update showed growth was now expected to be 2.1 percent in the year to March and 2.4 percent in the year to March 2017 versus the previous forecasts of 3.1 percent and 2.8 percent.
Net debt was forecast to peak at 27.7 percent of gross domestic product in the year to June 2017.
English said the government remained committed to reducing its debt to around 20 percent of GDP by 2020 and to within a range of zero percent to 20 percent of GDP in the medium term.
While growth was slower, English expected a pick-up in the medium term and said if "economic and fiscal conditions allow" the government could begin to reduce income tax from the 2017 budget.