Forecast: 'Out of sync' in 2003

By ULF SCHOEFISCH*

The remarkably strong performance of the New Zealand economy during a period of difficult global conditions - described by Finance Minister Michael Cullen as being 'favourably out of sync' - is ending.

The income effect of falling commodity prices is hitting the regions, and the strengthening dollar is hurting the export sector.

Strong inward migration is acting as a counter-balancing force, particularly in Auckland, but its impulse on construction and the housing market will reduce.

As a result of these influences, growth is expected to slow to around 2 per cent next year - at a time when the global economy is likely to show renewed strength.

The good news is that the Reserve Bank should be able to reduce interest rates in the second half of next year, as inflation pressure subsides. However, a black spot is the rapid widening of the current account deficit, showing more work is needed to address underlying structural imbalances.

* Chief economist, Deutsche Bank NZ

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