Inflation rate expected to go through 3pc barrier

The economy will remain robust but weaknesses could still impact on the economic outlook, forecaster Berl says.

Berl senior economist Ganesh Nana said yesterday the balance of payments, current account deficit, uncertainties around the twin US deficits and oil prices were the primary sources of nervousness.

"But, on balance, we pick the domestic economy to remain healthy over the next three years," he said.

Berl forecasts GDP growth will ease to 3 per cent in 2005-2006, yet will firm to 3.4 per cent by year end March 2008.

The reduction in growth is caused mainly by the continuing strong kiwi, high interest rates and some uncertainties around the election. However, growth in the economy is broadly-based and Berl is forecasting that ongoing employment growth of 2.5 per cent to 3 per cent per annum will underpin economic activity.

This is in contrast to the Reserve Bank, which forecasts zero employment growth for 2007 and 2008.

Director Kel Sanderson said there were strong signs across the labour market.

"There is a continuing inflow of 40,000 Northern Hemisphere migrants with skills, money and enthusiasm, as well as a flow of mature local people aged 30 to 50 being mobilised into the labour force," Sanderson said.

He said the behaviour change was being driven by Te Wananga o Aotearoa and other providers, who were promoting increased access for mature migrants to "starter" courses. The migrants were then going into employment, and mainstream courses at polytechnics and universities to gain specific skills.

Nana said the relatively strong domestic economy and high oil prices would inevitably drive the headline inflation rate through the 3 per cent barrier.

"BERL [thus] expects the Reserve Bank to be reluctant to ease interest rates before mid-2006 and the dollar is likely to remain at present levels until then," he said.

- NZPA