Insipid forecast for NZ growth

SYDNEY - New Zealand's economy is expected to grow at an average annual rate of 2.7 per cent over the next 10 years, says economic forecaster BIS Shrapnel.

The figure compares with a 5.1 per cent average for the Asia-Pacific region, 4.4 per cent for Asean countries and 3 per cent for developed nations in the Organisation for Economic Co-operation and Development.

The report out today, Asia-Pacific Economic Outlook 2002-2012, said the New Zealand economy was on a firmer footing than in the 1980s and early 1990s.

It was favourably out of step with the rest of the world and, under normal circumstances, was about to enter a sustained period of growth.

However, a sharp downturn in the global economy and rising uncertainty after the September 11 terrorist attacks would instead lead to patchy growth in the short term.

"Exports will slow substantially, particularly in the tourism sector and consumers will be more cautious about new spending," the study said.

"Business will also be more cautious about new investment plans, although steady domestic demand and already tight capacity constraints will see some spending go ahead."

The study said New Zealand's real gross domestic product would increase at 2.5 per cent in the 2001-02 year, with domestic demand offsetting the weaker external section.

Growth would pick up to 3 per cent in 2002-03 as a recovery in world demand coincided with a modest rise in business investment and residential building activity.

However, while average annual growth of 2.7 per cent was forecast over the coming decade, the boom-bust cycle would continue, the study said.

This was because capacity would prove inadequate each time demand grew strongly, while interest-rate policy would continue to have a negative impact on investment.

"Despite a year of relatively weak growth, the New Zealand economy has continued to experience capacity problems over 2000-01.

"Skill shortages and under-investment will again see capacity constraints emerge as a major concern once the upswing gathers pace."

The lack of production capacity meant domestic demand would lead to a surge in imports and a current account blowout.

- NZPA