Economy expected to gather pace

The OECD expects New Zealand's economic growth to gather pace over the next two years, supported by low interest rates, the rebuilding of Christchurch, and comparatively strong growth in its two most important trading partners, Australia and China.

The OECD (Organisation for Economic Co-operation and Development) said growth in the 2011 December quarter was 1.3 per cent up on the same quarter in 2010. This is expected to rise to 1.9 per cent this year and 2.8 per cent next year.

The expansion is being held back by a strong exchange rate, falling export commodity prices, pressure on households to reduce debt, and the withdrawal of fiscal stimulus, it said.

Its forecasts have government consumption shrinking both this year and next by 0.7 per cent, while gross fixed capital formation, which would include the rebuild, climbs by 6.2 per cent this year and 11.2 per cent next.

The OECD said the Government needs to stick to its fiscal consolidation plans, given the vulnerabilities of rapidly rising public debt and high external debt.

The forecasts, part of the OECD's latest twice-yearly economic outlook, project a "muted and uneven" recovery across OECD economies, reflecting the lingering effects of past turmoil, particularly strong fiscal headwinds in the euro area, and a gradual cyclical recovery in most emerging economies.

It sees the eurozone crisis as posing the most important downside risk to the global economy.

"Other serious downside risks include that no action will be agreed to counter pre-programmed fiscal tightening in the United States in 2103, and that a relatively moderate further deterioration in supply conditions in the oil market could trigger a significant upward spike in oil prices in the near term."