Quakes won't derail growth: NZIER

Faulting in the countryside around Waiau following this month's 7.8 Kaikoura Earthquake. Photo / Dr Kate Pedley

Strong GDP outlook tipped to remain as economy is robust enough to ride out challenges from earthquakes

The New Zealand economy is solid enough to overcome challenges posed by the series of earthquakes that have hit parts of the country this month and growth is still expected to average 3 per cent a year over the next five years, the NZIER said in its latest issue of Quarterly Predictions.

The institute said that recent events have introduced more than the usual level of uncertainty into the economic outlook.

The earthquakes, centred in Kaikoura and Seddon have reverberated throughout the country -- particularly Wellington -- disrupting business activity and causing substantial damage to infrastructure and buildings, but NZIER said the effects of them will be largely isolated.

Overseas, the shock election of Donald Trump as President of the United States "ups the ante" on global relations.

"There is much uncertainty over which of the many policies he flagged prior to the election he will follow through on, but markets for now have taken his surprise win in their stride," NZIER said.

"The New Zealand economy is in good shape, which should provide a buffer against these recent shocks."

Besides tourism, construction activity continued to ramp up as housing supply increases in response to strong demand.

The continued surge in net migration would underpin housing demand over the next few years, the institute said.

Elsewhere in its report, the NZIER said CPI inflation -- which came to just 0.4 per cent in the September year -- was showing signs of lifting and that the risk of deflation had subsided.

Besides the inflationary expectations of president-elect Trump's expansive fiscal policies, commodity prices are also recovering, partly due to reduced mining investment which will stifle supply growth over the long run.

Although annual CPI inflation in Strong economic growth forecast despite earthquakes

New Zealand remains well below the Reserve Bank's 1-3 per cent target band, it showed signs of lifting.

In particular, construction costs continued to show strong growth reflecting capacity pressures in the building sector.

The New Zealand economy is in good shape, which should provide a buffer against these recent shocks.

The Reserve Bank this month cut its official cash rate by 25 basis points to 1.75 per cent and NZIER, like other private forecasters, agree that the rate will go no lower in the current cycle.

Official Statistics NZ data showed the consumer price index rose by 0.4 per cent the September year and gross domestic product grew by 2.8 per cent in the June year.

NZIER's view on the country's future growth prospects is broadly consistent with other forecasts.

ANZ expects GDP growth of 3.5 per cent a year over the next two years, before moderating a little.

ASB Bank economists expect to see growth of around 3.5 per cent over the next two to three years before settling down to 2.8 to 3.0 per cent.

Economists at the Bank of New Zealand expect 3.5 per cent in the year to March 2017, followed by 3.0 in 2018 and 2.2 per cent in 2019, later easing to 1.7 and 1.6 per cent in the following two years.

Westpac expects 3.4 per cent GDP growth in calendar 2016, followed by 3.2 per cent in 2017 before easing to 2.9 per cent, 1.9 per cent and 1.6 per cent in each of the ensuing years three years.

The Reserve Bank, in its latest monetary statement, forecast GDP growth rates for 3.7 per cent for year to March 2017, 3.6 per cent for 2018 and 2.6 per cent for 2019.