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A little more optimism about economic growth


Monday 20th June 2011

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Economists have become a little more optimistic about the outlook for economic growth, latest consensus forecasts prepared by the New Zealand Institute of Economic Research (NZIER) indicate.

The consensus forecast is now for gross domestic product growth to rise from 1.1 percent in the year to March 2011, to 2.1 percent in the year to March 2012 and 4 percent in the year to March 2013. The forecasts for the next two years were revised upwards, compared to the consensus forecast in March, by 0.1 percentage points in each case.

Rebuilding of Canterbury from earthquake destruction continued to be a central pillar of strong economic growth, particularly for construction, NZIER said.

But continued aftershocks were complicating the outlook, with economists' views diverging on the scale and timing of reconstruction.

Inflation forecasts had been revised upwards, from 2.6 percent in the year to March 2012 which had been expected in the March consensus of forecasts, to 2.8 percent in today's consensus.

Employment was now expected to rise by 1.3 percent in the year to March 2012, more slowly than the 1.8 percent growth that had been expected in the March forecast. For the year to March 2013 the latest consensus forecast is for employment growth of 2.5 percent, rather than the 2.6 percent consensus three months ago.

But the unemployment rate is expected to fall faster than previously forecast, dropping to 6.1 percent in March 2012 and 5.3 percent in March 2013. That compares to the consensus forecasts from March of 6.4 percent and 5.5 percent, respectively.

Improvements in the labour market would feed through to higher wages, although forecasts ranged from a strong rebound to grinding recovery, NZIER said.

The consensus was for nominal wages to grow by 2.9 percent in the year the March 2012 and 3.5 percent the year later.

Small rises in real incomes would support a gradual recovery in household spending, NZIER said.

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