NZ growth to lag world

New Zealand's economic growth is expected to lag global growth by about 1 per cent, the United Nations says.

The UN's World Economic Situation and Prospects 2006 report forecast the country's economy will grow 2 per cent this year, against expected growth in the world economy of 3 per cent.

The estimate tallies with the Reserve Bank forecast of 2 per cent growth for the year to March 2007.

The UN report said New Zealand's economy had already slowed in 2005, mainly due to the strong kiwi dollar. While the housing boom had continued, prices seemed to have reached unsustainable levels. Coupled with low savings and high interest rates, the UN said many households were vulnerable to falls in house prices.

"Additionally high interest rates have attracted international hot money and induced an appreciation of the currency and a widening of the external imbalance."

The UN report said a large current account balance was also a problem for Australia.

"In both economies, large current account deficits encompasses some risks, with some adjustment already occurring in Australia and problems looming in New Zealand," it said.

In Australia, house prices have already dropped, resulting in lower consumption and borrowing.

The UN expects inflation in New Zealand to average 3 per cent in 2006 and unemployment to rise to 4.2 per cent from 3.4 per cent.

- NZPA