NZ Data

Business and Economic Research Ltd. (BERL) said the economy had slowed in the previous two quarters, but it was likely to be either at a turning point or close to it about the middle of this year.

“It is business investment that has been holding it up for quite a while, and we see that continuing on, with exports coming in later on,” senior economist Ganesh Nana said.

The research group held its forecasts for annual average growth in gross domestic product (GDP) at 2.2 percent in the year through March 2006 and 1.9 percent in the March 2007 year. Growth was expected to increase to 2.4 percent by 2008 and 3 percent the year after.

Economic activity was also being underpinned by employment growth and a turnaround in immigration gains.

“So, while overall GDP growth may be subdued, some might even term it shaky, there remain sources of positive influences that suggest growth will continue,” Nana said.

Economists polled by Reuters forecast GDP growth of 2.1 percent in the year through March 2006, from 2.2 percent in the December year. The GDP data, due on Friday, is expected to show the impact of a strong currency on exports, and slowing domestic activity.

The research house said the central bank appeared to be justified in keeping its official cash rate steady at 7.25 percent, despite the economic slowdown, because of persistent inflation pressures, but it did not expect any easing this year.

“All the signals from the Reserve Bank are they’re going to hold out, they’re fairly hawkish,” Nana said, adding that investment might suffer the longer the central bank held rates.

The RBNZ has held its cash rate, the highest in the developed world, steady so far this year, after raising it by 2.25 percentage points between January 2004 and last December.

Consumer price inflation would remain outside of the central bank’s target band of 1 percent to 3 percent in the near term, but would fall to 2.7 percent by March next year.

BERL said it would take some time for a lower New Zealand dollar, which has fallen around 10 percent so far this year, to feed into improved returns for exporters.

“Consequently, the deficit on the nation’s current account balance of payments is set to remain its Achilles Heel over the forecast period,” Nana said.

BERL forecast the current account deficit to widen to 9.2 percent of gross domestic product in the year to March 2006 and the year after, before declining to 8.9 percent in the March 2008 year.

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©2006 Xtra Limited

WEDNESDAY, 21 JUNE 2006

By JAMES WEIR
The economy is cooling down, with growth of almost 2 per cent expected in the year to March 2007 and a mild improvement in the next two years, BERL has forecast.

The group is expecting business investment and government spending to lead economic growth.

The workforce is forecast to grow by 40,000 in the coming year, a slower rate than the 60,000 a year for the past three years.

Net migration to New Zealand is expected to improve, as is tourism.

But despite a big fall in the New Zealand dollar this year, there is only “modest scope” for an immediate rise in exports.

“We don’t expect to see significant export-led growth till 2008, and even then our forecasts are relatively conservative at 4.2 per cent growth,” BERL says.

The New Zealand dollar has dropped about 12 per cent in the past six months, so there will be a collective sigh of relief among exporters, it says.

But there are lags between a fall in the currency and a boost to export volumes from farms, forestry and fishing.

Meat and horticulture exports will be held back by previous stock numbers and planting decisions. Meat export volumes stalled in recent quarters. Volume sales were down 2 per cent in the March 2006 year.

The big fall in the Kiwi dollar has boosted returns for forestry, with log exports the biggest winner through improving prices as well as a lower currency.

The improved returns would not mean a big rise in forestry export volumes, however, because pulp production was already close to capacity and log sales were held back by higher shipping costs.

BERL tips more robust growth in tourism, which stalled because of the high dollar last year.

March-quarter gross domestic product figures are due on Friday.

Bank economists forecast growth of 0.5 per cent to 0.9 per cent, with an annual growth rate of just more than 2 per cent. The economy stagnated in the second half of 2005, and will remain subdued this year because of high interest rates, the previously high Kiwi dollar, record fuel prices squeezing company profits and cutting household spending, and a cooling housing market.

BERL says economic growth will be subdued at 1.9 per cent in the year to March 2007, compared with average world growth of close to 5 per cent.

But there are some positive factors suggesting growth would continue.

Business investment last year was equal to 16 per cent of gross domestic product, the highest level for more than 20 years.

Government investment spending has also been rising strongly.

There are many big building and roading projects throughout the country, and that investment spending is expected to keep leading economic growth, BERL says.

Net migration had also bounced back strongly, from 7000 in 2005 to more than 10,000 in the past 12 months.

That was expected to rise to 17,000 this year, led by returning Kiwis.

The median house price was unchanged at NZ$305,000 (US$188,271) from April, though still 10.9 percent above the same month in 2005, the Real Estate Institute of New Zealand (REINZ) said.

Institute members sold 9,642 houses in May, a 27 percent rise on April and 4.2 percent higher than a year earlier.

“The sales statistics show that the market has consolidated; prices remain strong with a good number of properties continuing to sell, which shows a resilient residential property market,” REINZ President Howard Morley said in a statement.

The median number of days taken to sell a house rose to 38 days from 34 days in April.

The strength of the housing market has been a factor in the central bank ruling out any prospect of an interest rate cut this year, despite a slowdown in other parts of the economy.

The Reserve Bank of New Zealand (RBNZ) left interest rates at 7.25 percent this month after raising them by a total of 2.25 percentage points since January 2004.

Prices rose in five of the REINZ’s 12 regions, fell in six and were unchanged in one.

Median house prices in Auckland, the country’s largest commercial and population centre, rose 3.3 percent against April, and sales rose 22 percent. (US$1=NZ$1.62)

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