Economic growth expected to slow

By Phil Boeyen, ShareChat Business News Editor

Tuesday 5th March 2002

New Zealand's economic growth is tipped to fall to 1.7% in the coming year according to the New Zealand Institute of Economic Research, down from an estimated 2.8% for the year ending March.

In the past year the institute says business investment has been sustained by high capacity utilisation, low real interest rates and robust domestic demand, with strong growth in business profits boosting household consumption.

Although household demand will continue to drive economic growth for the next 12 months, export demand growth is expected to remain subdued.

"The external environment will continue to be the most significant dampening factor on New Zealand's economic growth over the next year," the NZIER says.

"Trading partner growth in the first half of 2002 will be anaemic as the effect of increased unemployment is felt on consumer spending. There are no signs of Japan's serious economic problems abating, and the outlook for Japan is the major risk for the international situation."

The NZIER predicts this environment will limit growth in New Zealand's exports to 2%, with falling commodity prices causing export prices to drop faster than import prices.

However it predicts that business investment will remain at current levels despite a weak outlook for profit. Consumption growth is also forecast to hold up as households spend some of their income from previous years.

"Relatively low real interest rates will encourage households to borrow and spend, rather than save. A net inflow of migrants will also lift domestic demand."

The institute says the main risk to its forecast is the expectation that households will take the current international downturn in their stride, a view it says is supported by current levels of consumer confidence.

"However, if consumers were to focus more narrowly on current conditions, confidence could crumble. This could lead to lower growth in private consumption in 2002/03 than we forecast."

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