Growth and inflation forecasts rise slightly

Photo / Natalie Slade

Economic forecasters see both more growth and higher inflation over the next couple of years than they did three months ago.

Consensus forecasts compiled by the New Zealand Institute of Economic Research from a survey of 11 private and public sector agencies have revised up annual average growth for the March 2012 and March 2013 years by 0.1 percentage points to 2.1 and 4 per cent respectively.

The consensus is closer to the Treasury's Budget forecasts of 1.8 and 4 per cent than the Reserve Bank's more bullish 2.5 and 4.6 per cent.

The modest improvement in the growth outlook reflects a stronger track for private consumption, offset by a weaker outlook for government consumption after the Budget, but most of all an even swifter acceleration of residential investment, now expected to rise at an annual average rate of 38 per cent in the year to March 2013, driven by rebuilding Christchurch.

Inflation forecasts, previously 2.6 per cent for both years, have also been raised to 2.8 and 2.7 per cent respectively.

"Inflation expectations have been rising across many surveys in recent months," the institute said. "This will be a cause for concern for the Reserve Bank, which is mandated to control inflation between 1 and 3 per cent over the medium term."

It will also erode most of the wage growth forecast - 2.9 per cent in the year ahead rising to 3.5 per cent the year after - but leave enough to support a "gradual" recovery in household spending.