Recession's over, but economy's not out of the woods yet: NZIER

Tuesday 1st December 2009

The recession’s over according to the New Zealand Institute of Economic Research, but there’s still a few potholes on the road to recovery.

The Wellington-based researcher’s December 2009 Quarterly Predictions commentary, and forecasts covering the next five years, said the next few quarters will be bumpy as the economy “slowly converts the rebound into recovery.”

“There are still significant risks to the economy from renewed over-valuation in the housing market, rising unemployment, persistent external imbalances, rising oil prices and eventual withdrawal of monetary and fiscal stimulus,” said NZIER principal economist Shamubeel Eaqub. “There is little urgency to raise interest rates given the weakness in the economy and risks to the outlook.”

As a result, he said, the Reserve Bank is expected to raise interest rates from the current record low 2.5% starting in the September 2010 quarter, towards 5.5% by mid-2011. NZIER estimates the Kiwi economy contracted by 0.9% in the 2009 calendar year, and it expects a 2.6% recovery in 2010, compared to other economists’ consensus recovery figures of 2.0%.

“Our above consensus forecast for 2010 is due to less import dependent consumption recovery and more resilient exports,” said Eaqub. “Our view on the construction sectors is weaker than consensus; we expect a shallower recovery due to slowing net migration, rising interest rates and rising vacancies impacting on commercial real estate.”

The report said the Kiwi dollar may find continued support in the near term, particularly against the economically vulnerable U.S. dollar and British pound. It warns that the medium term case for a sustained New Zealand dollar depreciation remains in place due to unsustainable external imbalances.

Businesswire.co.nz

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