-
Pedestrians in city - Source: ONE News -
Watch Video
Economic think tank the New Zealand Institute of Economic Research believes the recession is over and was shallower than expected earlier in the year, but the outlook is characterised by uncertainty.
In its latest Consensus Forecasts Survey, the NZIER says GDP forecasts to March 2010 have improved and are now at -0.4% compared with -1.3% forecast in the September survey.
GDP forecasts continue to improve over the following two years: in March 2011 the NZIER is tipping GDP to be at 2.8% and 3% in 2012. However, it says forecasts range from 1.8% to 3.7% which reflects "considerable uncertainty in the present climate'.
Employment is expected to peak at 7% next year, down from the 7.3% forecast earlier. However, NZIER expects unemployment to stay at this level until about March 2011. It expects it will improve by the following year and is picking a 6.3% unemployment rate in March 2012.
Growth in wage inflation is expected to lag, with the NZIER predicting it will slow from 3.5% in March 2010 to 2.2% the following year and 2.4% in March 2012.
"This implies no real wage increases in coming years, yet another cautious signal for the household sector," the think tank says.
Exports, which have been hit by a high New Zealand dollar, are expected to improve next year with a forecast 0.7% lift in March. But, export returns may be stifled by an expected rise in the exchange rate.
However, the NZIER says there is a wide range of views on where the Kiwi dollar will go on a trade weighted basis. It says most expect modest appreciation over the coming years, though some forecasts range from very high, to 2001 lows. The consensus forecast, the NZIER says, is for the TWI to be 62.3 in March 2010, 64.0 in March 2011 and 62.3 in March 2012.
The government books are expected to improve as a result of improved trade, reduced interest payments on overseas debt and reduced on-off tax losses by banks. But, the NZIER says there is uncertainty on how sustainable the improvement in the current account will be.
Inflation is expect to remain under control at between 2.1% and 2.3% between March 2010 and March 2012. This falls towards the upper end of the Reserve Bank's target inflation range of 1%-3%.
Investment activity is predicted to improve, from a pessimistic -15% previously forecast for March 2010, to -10.7%. The NZIER expects investment pessimism to fade in the following two years, with investment activity forecast to be 3.8% in March 2011 and 8.3% in March 2012.
