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Shallower economic recovery tipped in NZIER survey

Monday 19th March 2012

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Economists have cut their growth expectations over the coming two years, forecasting a slower and shallower recovery as the Canterbury rebuild suffers delays.

The economy will grow 1.8 percent in the March 2012 year before accelerating to 2.7 percent and 3.2 percent in the subsequent two years, according to the New Zealand Institute of Economic Research’s consensus forecasts.

That’s down from a forecast of 2.1 percent this year, and 3 percent apiece in the each of the following years in the December survey, which had already trimmed previous growth expectations.

“Growth forecasts have been revised downwards for a second successive survey,” NZIER economist Peter Nicholls said in his commentary. “The main driver is a later and longer rebuild in Canterbury.”

The survey comes the same week as economist prepare for fourth-quarter gross domestic product data, which will likely show a slower speed of economic growth at 0.6 percent in the period, according to a Reuters survey.

Respondents to the NZIER survey expect the Canterbury rebuild will start later and take longer, with residential construction investment weak in the March 2012 year, before surging in the following years.

Even once the reconstruction effort gets underway, respondents aren’t picking inflation to steam ahead, with the consumer prices index forecast trimmed to a pace of 1.8 percent in the 2012 year, 2.1 percent in 2013, and 2.5 in 2014. Respondents had previously picked faster CPI inflation at 2.3 percent, 2.4 percent and 2.5 percent respectively.

The prospect of tepid inflation means interests rates will stay lower for longer, as does a high exchange rate as it hold down the price of imported goods.

Economists don’t expect the Reserve Bank will start hiking rates until the end of this year or early next year, see the 90-day bank bill rate, often seen as a proxy for the official cash rate, at 2.7 percent in 2012, 3 percent in 2013, rising to 3.8 percent in 2014. That’s down from 2.8 percent, 3.2 percent and 4.2 percent in the December survey.

Traders have priced in 30 basis points over hikes to the OCR in the next 12 months, according to the Overnight Index Swap curve.

ANZ National Bank, ASB, Bank of New Zealand, Deutsche Bank, First NZ Capital, Goldman Sachs, NZIER, Reserve Bank, The Treasury, UBS and Westpac participated in the survey.

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