Forecasters' growth predictions darken

Photo / Herald on Sunday

Economic forecasters are taking a darker view of the outlook than they did three months ago.

The New Zealand Institute of Economic Research's quarterly survey of its fellow forecasters - eight from the private sector, plus the Reserve Bank and Treasury - found a weaker consensus on the prospects for growth, employment, investment and inflation.

"The growth outlook remains positive, no double-dip recession,but the outlook is a little lessoptimistic than in June," NZIER economist Peter O'Connor said.

The consensus is still for interest rates to rise over the next two years, but less sharply.

Not all the forecasters had incorporated the possible effects of the Canterbury earthquake, O'Connor said.

They expect output growth in the year to March 2011 of 2.8 per cent, 0.4 percentage points less than forecast in June.

Forecast growth in the 2011/12 year has been trimmed as well, from 3.3 to 3.1 per cent, and it is expected to drop to 2.6 per cent the following year.

Unlike the Reserve Bank last week, the consensus outlook for consumer spending has not been scaled back, but a weaker pick-up in business investment is now expected.

Expectations for employment growth have been revised down and the unemployment rate, now 6.8 per cent, is forecast to improve only slowly, to 6.2 per cent by March next year and 5.3 per cent two years later.

The economists do not expect the increase in GST on October 1 to have an impact on average wages because of income tax cuts.

Wages are expected to grow 1.5 per cent in the current March year, rising to 2.9 per cent next year and 3.3 per cent the year after.