Economists trim forecasts for growth

Tuesday 21st September 2010

Economists have wound back their expectations for New Zealand’s recovery, in step with the central bank’s view that it will raise interest rates at a slower pace to nurture a fragile economy.

New Zealand’s economy will grow 2.8% in the 12 months ending March 31, according to the NZIER Consensus Forecasts survey. That’s down from the 3.2% expansion forecast in the June survey. Growth in 2012 was trimmed to 3.1% from 3.3%.

The range of forecasts has widened, which NZIER said may be due to the uncertain impact of the Canterbury earthquake, which not all economists allowed for in their assessments. Reserve Bank Governor Alan Bollard kept the official cash rate at 3% this month, saying future rate hikes will be “more moderate” as the Christchurch earthquake disrupts an already slowing recovery.

The survey shows the consumer price index is expected to spike to 4.7% in March 2011, reflecting the impact of higher goods and services tax and other levies. Excluding the impact of one-time price increases, inflation would reach 1.9% next March and 2.4% 12 months later.

While personal tax cuts will help compensate households for the one-time impact on inflation, general inflationary pressures are set to erode 80% to 90% of wage gains over the next two years, the survey said. Wages will grow 1.5% in the year to march, unchanged from the previous survey.

The jobless rate will ease to 6.2% by March, from 6.8% currently, and fall further to 5.3% by March 2013.

Economists expect the nation’s trade balance will deteriorate as export growth slows and imports pick up pace. Export growth of 2.8% is expected in the year through March 2011, down from a June estimate of 3.5%. March 2012 exports will grow 5.2%, little changed from June’s 5.3% forecast.

Investment activity is predicted to surge in the next three years though not quite at the pace seen in the June survey. Investments would climb 6.8% in 2011, down from a previous estimate of 7.4% and by 8.2% in 2012, down from 9%.The trade-weighted index is seen at 66.7 as at March 2011, from 66.94 currently. The TWI would fall to 66.3 in 2012 and 63.7 in 2013.

Businesswire.co.nz

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