NZ economy picked to keep growing in next three years

1.00pm

The economy will keep growing across the board in the coming three years despite continuing business sector gloom and a high dollar, Business and Economic Research Ltd (Berl) said today.

Berl's forecasts project economic growth of 3 per cent in the March 2004 year, but the pace will slow down in the next two years.

Growth would ease back to 2.8 per cent the following year, with a slightly weaker picture the year after that at 2.5 per cent.

The overall pace will be slower than the past decade of robust expansion, which has seen average growth of 3.7 per cent.

The rise in the Kiwi dollar would not stop the economic expansion because the global economy is picking up, Australia is buoyant and cheaper imports encourage business investment.

The main exception was the forestry sector where the high dollar, rising power costs and low world prices for timber products have taken a toll.

Despite the high dollar, Berl is "reasonably optimistic" on the general outlook for farming and building, investment and spending in the provinces.

The dairy payout is forecast at between $3.60 and $3.80/kg in 2005 and 2006, with a collapse in the payout "extremely improbable".

Even a worst case scenario only takes the payout down to $3.25/kg.

"The pace of activity in provincial areas will hold up well through 2004 and 2005," Berl says.

In the past four years there has also been strong growth in investment spending by businesses in general. Throughout the economy many more jobs have been created, 221,000 in the past five years alone, lifting the capacity of businesses to produce more.

That suggested "on-going growth is sustainable", Berl says.

The "precautionary" monetary policy stance by the Reserve Bank "bodes well for the continuation of the expansion in investment spending and thus the sustainability of this growth phase", Berl says.

The growth would be across "regions, industries and sectors" despite the remarkable situation that businesses have been generally pessimistic for 21 of the past 24 months.

At the same time there has been growth in production, jobs, spending and import and export volumes.

The business gloom reflected the "expectation of negative events" rather than an actual negative event.

The tight labour market would mean income growth and encourage continued migration to New Zealand.

Berl forecasts migration to slow down.

Migration hit almost 42,000 in the year to February 2003, but was down to just over 30,000 in the year to February 2004.

The trough would mean a net inflow of 15,000 in the year to June 2005, with a growing surge in returning New Zealanders.

Berl's forecasts for migration are not as low as some other projections.

And at 15,000 a year, the net inflow is still "well above the 10,000 a year considered not that long ago to be a high inflow scenario", Berl says.

"We believe this will continue to underpin domestic economic activity," the forecast says.

- NZPA