New Zealand's economy will grow by 4.2% in the 2011, led by an export sector bouyed by growth of our key trading partners, Westpac economists said.
Growth would be up from 2% in 2010, but then ease back to around 3% in 2012, they said.
"A combination of drought, weak house prices, soft income growth, and data measurement issues have kept economic activity subdued so far this year,” Westpac chief economist Brendan O’Donovan said.
"However, the outlook for 2011 is looking much healthier, and we believe it would be a mistake to extrapolate the recent weakness into 2011,” he said.
The major factors underpinning growth next year would be: ongoing global growth; strong income growth via an improving labour market and a rising terms of trade; continued monetary and fiscal stimulus; population growth; and, a better growing season in the agricultural sector.
Westpac said it expected the export sector would remain at the forefront of New Zealand’s recovery, with key trading partners forecast to grow at 4.4% pace in 2010, and 3.6% in 2011.
Continued strength in emerging markets was critical to the Westpac's outlook, it said, as it expected persistent strong demand from countries like China and India to support current high commodity prices and importantly the terms of trade.
“The terms of trade reflect NZ’s international purchasing power, so an increase means we can consume more without producing more,” O’Donovan said.
“The 13% surge in the terms of trade this year unambiguously leaves NZ better off. We expect that income boost to eventually flow into greater spending and investment activity,” he said.
Westpac said the skew of global growth toward developing economies and elevated commodity prices would likely keep the NZD at a high level.
(Udpate adds comments on trading partners, NZ$, link to document)