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NZIER consensus forecasts show growth to be lower, OCR on hold til end of 2013, unemployment to stay high next year, NZ$ to keep rising

Posted in News

By Alex Tarrant

Economic growth over the next three years will be lower than previously thought, meaning unemployment stays higher for longer, inflation stays subdued, and the Official Cash Rate (OCR) will be on hold until late 2013, according to the latest set of consensus forecasts.

Exporters are being warned to expect the New Zealand dollar will be higher for longer, with the Trade Weighted Index (TWI) expected to rise each year until 2015. Lower export receipts would contribute to lower tax revenue for the government, meaning it would not hit a fiscal surplus in the 2014/15 year as planned.

The Consensus Forecasts are an average of New Zealand economic forecasts compiled by the New Zealand Institute of Economic Research (NZIER) from a survey of financial and economic agencies.

The New Zealand economy was recovering gradually, with economic growth to average 2.5% over the next three years, NZIER said.

"The Canterbury rebuild will be a key driver, though it will be more protracted than previously thought," it said.

The job market was softening. Forecasts expected slow job growth and unemployment to remain higher for longer, while real wage growth was expected to be subdued.

"The grinding recovery means inflation will remain subdued. Forecasters expect interest rates to be lower for longer, with gradual rate increases expected from late 2013," NZIER said.

"A slow economy will also reduce tax revenue. Despite borrowing costs remaining low, the consensus does not expect a return to fiscal surplus by 2015."

See NZIER's comments on the forecasts below:

Slow and low

The economic recovery remains gradual. Growth will be steady but unspectacular, thanks to a weak global economy, ongoing deleveraging at home and uncertainty about the Canterbury rebuild.

Economic growth will be a little lower in 2013 (2.3% from 2.4%) and 2014 (2.8% from 2.9%), relative to our last survey.

Economic growth is expected to be 0.2% in the September 2012 quarter.

Canterbury rebuild more protracted

The Canterbury rebuild will lift investment.

Forecasters expect the bulk of the reconstruction to occur in 2013-2014. But they also expect the rebuild to take longer. Residential investment growth will still be +11% in 2015, up 1.5% from the September survey.

Uncertainty about the timing and size of the rebuild means there is considerable divergence amongst forecasters.

Export growth will slow

The export outlook has softened. Global demand has slowed and the NZD is expected to be higher for longer. Exports will be affected, though forecasters differ on the extent.

Forecasters agree that growth will be slower. Over the next three years, export growth is forecast to average 1.7%, down from 2.1% in the September survey.

Exchange rate to weigh on exporters

The NZD will remain elevated for some time.

Forecasters have revised their expectations upwards. On a trade weighted basis, the dollar is expected to be higher every year through to 2015.

Exporters should plan for weak demand and a high exchange rate for some time. A high exchange rate will favour imports.

Inflation subdued

A slow recovery means inflation is low. Consumer price inflation will remain within the RBNZ’s 1-3% target band over the next three years.

Forecasters now expect inflation to average 2% (down from 2.3% in the previous survey) over the next three years. Inflation is expected to be 1.4% in 2013 before picking up to 2.4% by 2015.

Interest rate increases delayed

The 90 day bank bill rate is forecast to increase from an average of 2.7% in 2013 to 3.0% in 2014 and 3.7% in 2014.

Forecasters expect interest rate increases to begin in late 2013, with smaller increases than previously thought. This is due to the sluggish recovery and weaker inflation.

Labour market trending sideways

There is considerable divergence amongst forecasters about the labour market. But the consensus expects job growth to be steady.

Unemployment remains high so competition for jobs is intense, moderating real wage growth.

Fiscal deficit to remain in 2015

The government operating deficit will narrow over the next three years, but consensus does not expect a return to surplus by 2015.

Forecasters expect government borrowing costs to remain low, despite being in fiscal deficit.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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20 Comments

Residential investment growth

Residential investment growth will still be +11% in 2015, up 1.5% from the September survey.
 
The NZD will remain elevated for some time.
 
Such emphatic forecasts belong in the dustbin alongside Ross Asset Managment's prior portfolio return statements.

Wait and See, Wait and See,

Wait and See, Wait and See, kick the can a little more down the road.
NZ dollar rising, exporters and manufacturers going to the wall.
More New Zealanders leaving for Australia so they have a shot at home ownership.
Builders leaving in droves to build houses in Australia for incoming Kiwis.
Finance companies have robbed the Nation, probably doing 3 months home detention.
Yep if you read between the lines of the RBNZ it's all there. Easy to see.
New Zealand based Australian Banks doing extremely well, Phew.
The Mission has indicated this will be the busiest year in a decade for Food and Shelter.
 

Uncertainty about the timing

Uncertainty about the timing and size of the rebuild means there is considerable divergence amongst forecasters.
So forex traders are now forecasting rebuild projections....i'll take that as a don't know. 
Exporters should plan for weak demand and a high exchange rate for some time. A high exchange rate will favour imports.
A recipie for a debt fueled econonomy.....plan for a high exchange rate..?, let's know a good plan and we'll look at it.
A little suprised not more attention is being paid to the incoming Japanese Prime Minister, an agressive approach to weaken the yen and force inflation will be an understatement, it will be downright hostile.
Given the tenure of Japanese P.M.'s he figures on going for broke , no more softly softly, and will be encouraging, dare I say bullying the B.O.J. to behave  compliantly.
This will set the cat among the pigeons in the New Year.
of course that is assuming the Myans have it wrong, or just ran out of Caleander space....note to self...pack a little something for the afterlife, j.i.c.

once again you guys fail to

once again you guys fail to see the clever plan behind destroying our export sector by been the only country in the world to still pay interest. just remind me again what is the plan

The Plan..vavau.to, was to

The Plan..vavau.to, was to borrow as much money as we possibly could while global lending rates were attractive as possible for extraodinary lengths of time...using this money wisely to service the unemployed peons who ,by the way are registered voters, having gained their confidence push ahead with asset sales ( the agenda), while selling off as much land as possible to foreign capital interests in a token attempt to balance some borrowings until asset sales are completed..
Now if any of the copius ammounts of Foreign capital injection have created employment for New Zealanders who, were already unemployed, not immigrant New zealanders just sworn in ,job ready...I am not aware of it. 

Easy, some investors in the

Easy, some investors in the USA pay JK a backhander (say 100millionUS) to keep the rate up so they make a packet off our backs. 
Or maybe you could suggest something that isnt completly un-believably loopy?
Really we have to ask JK and BE why they continue with this.....trouble is determining what the real, honest answer is because I dont think a) they know, or b) want to say.
Ive never seen an honest equal to equal answer, I'd love one.
regards
 

Good Plan!!!! I wonder where

Good Plan!!!!
I wonder where the US $ 45 billion at 0% interest is going to parkup over the holidays, some backwards pacific nation still paying interest maybe.

We're officially stuck

We're officially stuck between a rock and a hard place.
 
Decrease the OCR and the dollar will drop, borrowing will get cheaper and the exporters will be happy.  This will of course further fuel the Auckland housing boom and we'll all feel sorry for those first home buyers.  Of course if you increase the OCR to calm the housing market you will officially kill our export industry.  I think an increase in house prices is the lesser of 2 evils, National should lower the OCR and control housing using supply side solutions. 

The exchange rate's influence

The exchange rate's influence on how well the export companies do is greatly exaggerated, often by the very exporters trying to find an excuse for their incompetences.
Similarly, the OCR’s influence on Auckland property prices is greatly exaggerated too; the insufficient supply has a much greater influence.
The OCR will stay put for a while, until inflationary pressures push it up.

"Worse for longer"...now who

"Worse for longer"...now who would have thought that would be the case!
How much worse....enuff to warrant another gst hike...yes
Enuff to bring an end to the bloated civil service salaries for bosses...no
Enuff to end the MP salary and perk pigfest....no
Enuff to snuff out the splurge on 'consultants'...no
 

Vavau - lets stop paying

Vavau - lets stop paying interest forever right ?  Enjoy your retirement on fixed (non) interest - smart idea

this can not be !.....I have

this can not be !.....I have "reliable" sources that Auckland house prices will rise 14% next year 2013
!!! help Wolly what shall I do ?! ....I have never known a small economy to have so many differing opinions on the future ....but I an more inclined to go with NZIER ...but as Wolly and I know the "porking" in ALL its forms will continue ...... What happens when all the "pork" runs out .....??

I'm sure the problems of our

I'm sure the problems of our export sector have nothing to do with massive overcapsity in freezing works due to sheep numbers halving and carcass weights doubling in about twenty years, failure to impliment a meat & wool Fonterra type monoploy to corner and control those export markets as Fonterra has done to the GDT, failiure to impliment consumer driven reform for end product, eg mini roasts, marketing of wool as a luxury product, etc, or the tendancy to export our forest products as raw primary commodities, chips and logs, rather than the bulk of it being highly manufactured product.
Okay I know some PI operators are bucking up, ditching the dark ages, realising there will never be another Korean War wool boom, for example, and that wool is only 5% of all fibres traded therefore it is a luxury and renewable, hense green, consumer product, or that the Chinese will happily pay more for flaps than legs of lamb which they see as dull eating or creating high density plywood that can be used to build builds of 15 stories with massive earthquake resistance - massive rebuild opportunity in Japan with all those newly printed Yen anyone?- but we still have a long way to go.
I believe it was the good godfather of all economists, Adam Smith, that pointed out the only way to add value, hence more wealth, more jobs, more potential new capital is by manufacturing - not by mearly harvesting.
You wouldn't pay $12 for a handfull of mouldy wheat but that is in essense what the artisian crafted swiss loaf is without manufacturing.
It also doesn't help that we have largely opened our market to free competion globally while our trading partners refuse to do the same
But what has terrified me for more than a year is it is according to those that are paid to tell the rest of us these things it is only a massive natural disaster which is keeping the New Zealand economy (GDP) growing at all.
Without the Christchurch rebuild we would be in recession or worse.
This means the underlying real non disaster relief economy is in recession and it is only a massive Government and insurance spend - therefore less available 'savings' as local capitail and an increased need for taxation -thatis keeping NZ INC from sinking like a stone.
If you made it this far,
 
Cheers.

I went to Costco yesterday

I went to Costco yesterday and a huge chiller of fresh Aussie lamb for sale at knock down prices, still too expensive at $20 for a leg but thats not enough for farmers in NZ. Is Aussie lamb production being discounted going to be our downfall?

Countdown in Palmerston North

Countdown in Palmerston North has Aussie steaks for sale.....that does not make sense to me. 
We buy beef from a local farmer....same price as 8 yrs ago. He is happy.
Cheers

Think AJ.....! It's cheap for

Think AJ.....! It's cheap for a reason. Younger is tasty, melting and yummy........then you have the older larger almost a Hogget 'Lamb'.....feed the tribe on one leg....just remember to bash the leg on a rock for an hour before cooking slow and long...very slow and long. 

It's all about the nuts,

It's all about the nuts, Wally. By the time spring hits lasts years lambs are getting good at using them, its does give certain flavour to ones roast that some object to, including me.

Nuts....side dish

Nuts....side dish AJ....grilled and always on hand to offer to visitors as finger food. Dipped in Chocolate.

Tax thieving to get

Tax thieving to get worse..petrol and RUC both going up....how you like that xmas kick in the face...
No worries Tweak...I cut back once and can cut even more...drive slow as and save heaps on diesel....
Watch as the overall tax theft keeps going down and the loss of employment speeds up.
Tweak and Fiddle will claim the country needs to pay for the roading infrastructure....in reality it's no more than socialism dressed up as Lamb.

Actually, they're taxing real

Actually, they're taxing real activity, taxing something that is a mile away from being costed properly (both it's finite nature and it's pollutive effects) , what's wrong with that?