Dollar holds key to recovery outlook: consensus forecast

Dollar holds key to recovery outlook: NZIER consensus forecasts

By Pattrick Smellie

Dec. 14 (BusinessDesk) – “Wildly diverging” views about the value of the New Zealand dollar over the next three years represent one of the biggest influences on both the speed of domestic economic recovery and the return of an uncomfortably large current account deficit.

The latest synthesis of 10 public and private economic forecasters’ outlook for the economy from the New Zealand Institute of Economic Research confirms the economy has hit a slow patch, but growth is still expected to accelerate from mid-2011 to reach 3.5% in the year to March 2012.

That’s up 0.4 percentage points on the consensus in September, and reflects increased clarity about the pace of rebuilding following the Canterbury earthquake, with most residential reconstruction expected in the year ahead, while commercial property repairs would be spread over a longer period.

In the year to March 2011, however, consensus forecasts have dropped the growth rate to 2.1%, down from 2.7% in the September consensus. Growth is also forecast to slacken again in the March 2013 year, to 2.6%, unchanged from the September forecasts.

The only bright spot, compared to the September consensus, is in fixed investment outside the housing sector, with a strong uplift in all three years. In large part, that reflects Canterbury reconstruction, but also “the hope that businesses will start reinvesting,” said NZIER’s principal economist, Shamubeel Eaqub. “I’m personally sceptical of those forecasts.”

Meanwhile, forecasters’ views of the kiwi dollar had diverged even more than in September, with a range of between 60 U.S. cents and 70 cents, and consequent divergence in views about how badly New Zealand’s current account deficit, measuring all transactions with the rest of the world, would be.

Forecasts for the current account deficit in 2013 range from between $8 billion to $16 billion. Also widely divergent are views about export growth, with forecasts ranging from 2.1% to 9.1% for the March 2012 year, which is now the most relevant, forecastable forward period.

(BusinessDesk)

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