NZ economy tipped for slowdown

By NZPA

Tuesday 3rd December 2002

New Zealand is poised for a slower rate of economic expansion as domestic demand weakens, according to the New Zealand Institute of Economic Research's (NZIER) quarterly forecast.

It said the economy's fine growth rate this year -- an estimated 4 percent -- should ease to a more moderate but not low 2.5 percent in the year to March 2004, and 2.4 percent in March 2005.

NZIER senior economist Doug Steel said the brakes would start to go on domestic expansion next year as net migrant inflows eased and lower commodity prices began to flow to the wider business community.

Export volumes would be hampered by weak world demand and a stronger New Zealand dollar during the next two years.

Growth of manufacturing and tourism would reduce to slightly below average because of these factors, while primary export volumes would be reduced by a bad spring.

Lamb was the exception, with record lambing percentages this spring, pushing total meat export volumes up by an estimated 3.2 percent in 2003/04.

Mr Steel said fewer migrants would hit the housing market.

But a bigger risk was the international economy.

"A stumble in this market could prove harmful to economic activity over the next couple of years," Mr Steel noted, adding a fall in the Australian housing market would be most influential here.

A shortage of skilled workers would continue to put upwards pressure on wages, with average private wages rising by 3.7 percent in 2003/04.

Interest rates were not expected to change, with a weak world growth, low inflation and a strengthening currency lowering exports returns and import prices.

Consumer prices were tipped to rise by 2.1 percent over the next year.

Long-term economic growth was projected to ease from 2.5 percent in the five years to March 2003 to 1.6 percent in the five years to March 2022.

Mr Steel said the Government's target of a sustained 4 percent lift in gross domestic product seemed unlikely.

"We believe the current potential growth rate is just under 3 percent," he said, noting that New Zealand's population was ageing and that even in per capita terms, the required lift in labour productivity was unrealistic.

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