A jagged recovery, risks remain

A jagged recovery, risks remain

NZIER (the New Zealand Institute of Economic Research) today released its March 2010 Quarterly Predictions – a comprehensive commentary on the New Zealand economy and forecasts covering the next five years.

“The recession is over, but the recovery will be jagged. Some economic indicators – domestically and internationally – are ringing alarm bells. We see little urgency for the RBNZ to raise interest rates in this environment. We expect the RBNZ to raise interest rates from the September quarter 2010,” NZIER’s Principal Economist Shamubeel Eaqub said.

“Some housing indicators have suddenly plunged and internationally some confidence and housing figures have also shown renewed weakness. In addition, there are looming tax changes locally – details will be released in the 20 May 2010 Budget. Regulatory uncertainty, renewed weakness in housing and a fragile global recovery mean the economic outlook is uncertain.”

“The economy is on track for a bumpy and subdued recovery. We expect economic growth of 2.7% in 2010 and 1.4% in 2011 calendar years (consensus 2.6% and 3.1% respectively).”

“Household spending will recover slowly. The nascent recovery in residential construction will be delayed by rising mortgage rates and more people opting to live in larger households. A still cautious business sector and rising vacancy in commercial property will also restrain business investment and the recovery. However, restocking will add near term impetus to growth.”

“The labour market is stabilising and should improve from mid 2010. The unemployment rate is likely to peak around 7.5%, similar to the 7.3% rate in December 2009. However, there are many applicants relative to jobs – this will restrain wages for a further 12-24 months.”

“The NZD looks fairly valued on a relative economic performance basis. The key influences are likely to be around risk appetite and interest rate movements. We assume a largely sideways outlook through 2010.”

ENDS

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