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Negotiating some trickier shoals

-Macquarie Research

Wednesday 29th November 2006

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After a period of above trend growth the NZ economy is set for quite an extended period of weaker growth.

While a sharp deterioration in economic performance remains a risk, it is not the central scenario. Activity in the housing sector continues to moderate, and this is weighing on consumer spending, particularly discretionary spending.

Headline inflation is set to fall sharply. While core inflation is likely to remain elevated for some time, if employment growth continues to slow in line with weaker economic activity, the next move from the RBNZ is likely to be a cut in rates.

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