Darker global economy, slower Christchurch rebuild sap local recovery: NZIER survey

Monday 12th December 2011

Economists have cut their growth forecasts for the next two years as the global economic outlook and a slower Christchurch rebuild weighs on New Zealand’s recovery.

The economy will grow 2.2 percent in the year ended March 2012 before accelerating to 3 percent in each of the following years, according to New Zealand Institute of Economists consensus forecasts.

That’s down from 2.6 percent forecast for the 2012 year, followed by annual growth of 3.7 percent and 2.9 percent in 2013 and 2014 respectively, in the September survey of financial institutions.

“A darkening global economic outlook and a later rebuild in Canterbury were the two key drivers of a weaker economic outlook,” the report said. “A weaker economy and subdued inflation mean economists now expect the RBNZ (Reserve Bank) to raise interest rates later and more gradually.”

The survey follows NZIER’s own quarterly predictions earlier this month, which gave a break-up of the European common currency a one-in-four chance and forecast growth of just 1.5 percent in 2012, accelerating to 2.5 percent in 2013.

The respondents said the Canterbury rebuild will be the key driver behind an average 2.7 percent annual growth over the next years, and stripping out that injection, the economy will expand an average 2.2 percent.

That should underpin residential construction, which will be weak in the March 2012 year as it shrinks 10.1 percent, before growing 34.1 percent in 2013, according to the survey.

Business investment is expected to grow at slightly slower rate than previously forecast, up 7.2 percent in 2012, 8.1 percent in 2013, and 6.6 percent in 2014. That compares to the September forecast of 8.3 percent, 10.2 percent and 6.4 percent in the respective years.

Economists pared their expectations for export growth since the September survey due to the weaker global economic outlook and New Zealand’s persistently high currency. Exports are tipped to grow 2.7 percent in 2012, 1.6 percent in 2013 and 3.1 percent in 2014, down from 3.2 percent, 2.8 percent and 3.3 percent respectively.

That slowdown in the economy will likely hit employment, with growth of 1.1 percent, 1.9 percent and 1.8 percent over the coming three years, compared to expansion of 1.7 percent, 2.5 percent and 1.7 percent.

Economists pared back inflation expectations to an average 2.4 percent over the next three years, down from 2.7 percent forecast in September.

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

BusinessDesk.co.nz

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