KEY POINTS:
Real economic growth is forecast to be 1.9 per cent in the year to March 2009, down from 2.9 per cent in the previous year, according to the New Zealand Institute of Economic Research (NZIER).
In its June 2008 quarterly predictions released today, the NZIER forecast a slow increase in real economic growth over the next four years.
Economic growth will reach 2.8 per cent by March 2010, 2.9 per cent in 2011 and 3.1 per cent in 2012, the NZIER predicted.
A predicted fall in the growth of real private consumption in the next year will cause the growth contraction.
Real private consumption was forecast to grow zero per cent in the March 2009 year, down from 3.7 per cent the previous year.
"Private consumption expenditure makes up approximately 6 per cent of GDP by value, so this component of GDP remaining static in the March 2009 year will contribute significantly to the low overall level of economic activity."
The NZIER said retail sales figures, the household labour force survey, recent data on retail electronic card transactions (ECT) and the housing market all point to "rapidly slowing domestic economic activity".
High interest rates and high petrol and food prices have stretched household budgets in recent months.
The risks of inflation cannot be dismissed, especially given that in the year to March 2008 inflation was well outside the Reserve Bank's target, the NZIER said.
Indicators of the risks of inflation include business intentions to raise prices , capacity utilisation, and a labour cost rise of 3.4 per cent, according to the figures.
The NZIER said tax cuts announced last week by the Government favoured those on low to middle incomes who tend to spend any extra they get, and will likely even spend in anticipation of getting it.
With oil prices and other commodity prices remaining strong "any easing in monetary policy would lead to the New Zealand dollar weakening more and exacerbating this inflationary stimulus".
The NZIER said it was likely to be the final quarter of 2008 before the Reserve Bank cut the Official Cash Rate.
"We think the likelihood of any further increases before the next downward move has become very small, however."
- NZPA
