OECD predicts a soft landing for NZ economy

The OECD picks New Zealand's economy to make a soft landing as net migration inflows ease, house prices level off and the effects of the local currency's recent run up spread from exports to the wider economy.

The Paris-based Organisation for Economic Co-operation and Development's Economic Outlook published this week presents shaved-down estimates of New Zealand's economic prospects. The report said the GDP growth would decline from 3.2 per cent this year, to 2.5 per cent in 2005 - down from 2.9 per cent forecast in the organisation's previous Economic Outlook in November last year.

Growth across the 30-member OECD is forecast at 3.4 per cent in 2004, easing to 3.3 per cent next year.

The OECD noted New Zealand's domestic activity boomed in the second half of last year, fuelled by migration inflows, rising house prices and residential investment.

"Private consumption growth has outstripped increases in disposable incomes as households have adjusted upwards their spending plans to reflect increased wealth."

But the export sector had been hit hard by exchange-rate appreciation.

It said net migration inflows had now peaked, which would help take some steam out of the economy, and buoyancy would be tempered by the lagged flow-through of weak export earnings to the rest of the economy.

"Prospects point to a soft landing, with activity decelerating as the current year progresses".

But the organisation said the potential for a sharper slowdown in net inward migration presented some risk to the economy by feeding through to a "substantial decline in residential construction and fears of falling house prices".

"With the savings rate already low and indebtedness high, this could lead households to retrench."

- NZPA