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BERL forecasts weaker short-term growth as shadows hover

MEDIA RELEASE – EMBARGO 01.00AM FRIDAY 26 JUNE 2015

BERL Birds-Eye View (Incorporating June 2015 issue of BERL Forecasts)

BERL forecasts weaker short-term growth as shadows hover

Three months ago we tentatively titled our forecast ‘a post-dairy era’. This time around, equally tentatively, we suggest we may need to prepare for ‘a post-euro era’.

More specifically there are three shadows over our forecast outlook. The first two have been clearly identified by most New Zealand analysts and commentators. In contrast, several seem to assume we will escape unscathed from another European upheaval. The three shadows are

• the resurgent cycle of net migration inflows has underpinned the New Zealand growth story over the past 12 to 18 months. How long this impetus continues is a critical element in formulating any short-term outlook for the New Zealand economy.

• the slump in commodity prices, in particular dairy prices, has the potential to significantly throw the economy off its growth path. The extent and timing of any recovery in dairy prices is a second critical element in the forecast story.

• the likelihood of a disorderly Greek exit from the euro mechanism grows by the day. And even if (yet another) last minute deal is brokered this cloud will continue to hang over the global economy. The euro scenario is now also a critical assumption influencing our forecast.

For our forecast we assume a disorderly Grexit is avoided for the time being. However, the brokering of another last minute agreement, again defers addressing the underlying imbalances and tensions within the euro mechanism.

We are relatively cautious regarding the dairy price rebound, but see the migration picture continuing to underpin growth over the forecast horizon. GDP is forecast to grow 2.1% over the year to March 2016, with 55,000 added to job numbers while unemployment remains close to 5.5%.

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