More concerns expressed about sustainability of economic recovery

Warnings about the sustainability of any economic recovery continue to mount, with the New Zealand Institute of Economic Research (NZIER) adding to the clamour.

NZIER yesterday released its latest quarterly predictions, with principal economist Shamubeel Eaqub saying the New Zealand economy was on the cusp of a fragile recovery.

The early part of the recovery looked to be strong, but its foundations were weak.

Eaqub warned of the risk of surging short-term growth followed by another recession.

A sustainable path would be a shallow recovery path accompanied by rising savings, reduced borrowing and strengthening exports, he said.

NZIER expects the economy to start growing again from the December quarter. "Consumer and business confidence is improving and some release of pent up demand is likely."

That would see economic growth of 3 per cent in the year to March 2011, after a 1.8 per cent contraction in the March 2010 year.

"As confidence returns, pent-up demand is crystallised and firms restock depleted inventories. Significant monetary and fiscal stimulus combined with migration-led growth means the economy is set to bounce from very weak levels," Eaqub said.

Rising interest and a stubbornly high exchange rate could derail a nascent domestic recovery and a much needed rebalancing towards exports.

Times would remain tough for households, with the unemployment rate set to climb to around 8 per cent in late 2010, from 6 per cent in the June quarter.

The country's gross domestic product declined 1 per cent in the March quarter, the fifth consecutive quarter of contraction. For the year to March, GDP fell 1 per cent.

- NZPA