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BERL Forecasts Short Interruption To Modest Growth

BERL Forecasts Short Interruption To Modest Growth Profile

In their latest assessment, independent economists BERL question the prevailing grim prognosis emanating from some quarters.

While not advising a 'head-in-the-sand' attitude, the BERL economists note that "there appears to be a sound basis for expecting the NZ economy to weather the oncoming period with only a short-term interruption to the modest growth profile experienced over the past couple of years".

"On the positive side are a growing Australian economy, low interest rates, a competitive exchange rate and a resumption of a migrant inflow", BERL Forecasts Editor and Senior Economist Dr Ganesh Nana said.

On the other hand, latest commodity price numbers and the accompanying slowing world economy suggest the export bonanza may indeed be entering its last phase. "But the easing in the commodity price surge on which we have been dining-out over the past couple of years, have been expected to ease for some time now", observed Dr Nana.

Taking these pluses and minuses into account, BERL write that sustained emphasis or focus on confidence or sentiment jitters (whether justified or not) could well derail the projected outcome. The role of policy and business leaders may be critical in this context.

BERL forecast GDP activity to show zero growth over the current and the March 2002 quarter. The surprising strength already recorded in the June 2001 quarter however, ensures the March 2002 year averages 2.4% growth overall. Thereafter, growth in activity returns to around the 0.7% per quarter rate - resulting in 1.8% average growth for the March 2003 year, followed by 2.9% for the March 2004 year.

Summary sheet (page 3 from December 2001 BERL Forecasts) follows.

THE PICTURE

December 2001

Last issue the watchword was : caution. This issue, the question is "is it really as bad as some are making it out to be?" While not advising a 'head-in-the-sand' attitude, there appears to be a sound basis for expecting the NZ economy to weather the oncoming period with only a short-term interruption to the modest growth profile experienced over the past couple of years.

Positive influences from a growing Australian economy, low interest rates, a competitive exchange rate and a forecast migration inflow are tempered by a moderate (but expected) easing in commodity prices.

Clearly though, sustained emphasis or focus on confidence or sentiment jitters (justified or not) could well derail the projected outcome. The role of policy and business leaders will undoubtedly play a central role in this context.

NZ interest rates could well fall further in early-2002 as inflation pressures continue to recede and moves to 'prop-up' domestic confidence are warranted. Nevertheless, concerns about the labour market situation are expected to shift the Reserve Bank into tightening mode by mid-2002, with 90-day rates set exceed 5.25% by end-2002. Exchange rates are expected to remain stable as the major central bankers work to eliminate that area of uncertainty. Thus the US$ is expected to remain near 123 Yen and the Euro near 89 US cents. Consequently, the NZ$ remains within the 42-43 US cents range over the immediate few months, rising slowly towards 45 US cents over the remainder of the forecast horizon.

Total employment numbers continued growing strongly in the September quarter. In full-time equivalent terms, job numbers have been increasing at a rate of 2.7% pa in recent quarters. This represents a very strong underpinning of ongoing economic growth. Employment growth of around 30,000 jobs pa is expected to rise to the 45,000 to 50,000 pa range in the latter half of the forecast horizon. Thus, the picture is of a reasonably tight labour market, although inward migration is assisting to alleviate some of the worst skill shortages. Attention to training and skills development, especially in the regions, remains an urgent requirement to support continuing growth in employment and the economy.

GDP activity is set to stall over the current quarter and the March 2002 quarter. The surprising strength already recorded in the June 2001 quarter however, ensures the March 2002 year averages 2.4% growth overall. Thereafter, growth in activity returns to around the 0.7% per quarter rate - reflecting an overall expansion in the 2.5% to 3.0% pa range over the forecast horizon.


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