Economic recovery view remains subdued - NZIER

Tuesday 14th December 2010

Economic growth is expected to remain soft next year, with forecasters downgrading their predictions after disappointing economic data in recent months, according to a quarterly survey.

Gross domestic product (GDP) was expected to grow by 2.1% for the year ended March 2011, lower than the previous forecast of 2.8%, according to the average of 10 forecasts compiled by the New Zealand Institute of Economic Research.

That was more pessimistic than Treasury forecasts released later today, which lowered expectations to 2.2% for the March 2011 year from 3.2% forecast in the May budget.

Interest rate rises are now expected to be later than previously forecast, NZIER said.

Growth is still expected to improve the following year, with forecasts of a rise of 3.5% in GDP up from the 3.1% forecast in the previous quarter's survey.

"Revisions over the past quarter reflect a soft patch in the near term and a boost to activity in 2012 from reconstruction in Canterbury," NZIER economist Peter O'Connor said.

However, respondents to the survey varied in their views of the size and timing of reconstruction in Canterbury following September's damaging earthquake.

Consumers price inflation is still expected to peak in March 2011, at 4.7%, following the rise in GST and other policy changes.

Excluding one-off items, the inflation rate forecast has been revised down slightly to 1.6% and 2.3% respectively in March 2011 and March 2012, NZIER said, within the Reserve Bank's target band.

Real wages are forecast to remain flat in the next two years, although tax cuts will help boost household income, while the labour market is expected to improve marginally. The unemployment rate is forecast to improve to 5.1% by March 2013, from 6.4% currently.

NZPA

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