Outlook brightening, economists say

Economists are more upbeat about the economy's prospects than they were three months ago, according to the New Zealand Institute of Economic Research's consensus forecasts.

The forecasters surveyed, which include the Reserve Bank, Treasury and eight private-sector bodies, now expect the economy to contract at an annual average rate of 1.3 per cent over the year ending next March, compared with 1.6 per cent in the June survey.

The average forecast for the following year is little changed - 2.7 per cent growth instead of 2.8 per cent in June - but the aggregate number masks some significant revisions in the components of GDP.

Private consumption is now expected to grow by 1.6 per cent, against 1.1 per cent in the previous consensus forecasts. But there is wide spread of views around that average.

And the forecasts for residential construction have lifted as well, with an 18 per cent rise in the year to March 2011, which reverses a 17 per cent decline in the current year.

The main offset is a weaker outlook for net exports as imports grow 4.5 per cent while exports rise only 2.5 per cent.

It was the first time in over a year that growth prospects had been revised upwards, the institute said.

But it noted a wide divergence of views about the sustainability of the recovery and the path of the exchange rate. The average forecast for the 2011-12 year is 3.4 per cent growth but there is a 1.3 per cent spread between the high and low end of the range, as there is for the coming year.

The unemployment rate, 6 per cent now, is forecast to hit 7.1 per cent by March and 7.3 per cent a year later, before easing to 6.7 per cent in 2012.

Expectations for the exchange rate in the current year have been revised up by 4 per cent from three months ago.