Strong economic growth predicted to continue for next six months

11.45am


New Zealand's two-speed economy has enjoyed a period of strong growth, with vigorous household and business spending fuelled by immigration and the ongoing housing boom expected to continue for at least another six months, Finance Minister Michael Cullen said today.

In the December Economic and Fiscal Update (Defu) released today, Dr Cullen said strong overall growth of 4.0 per cent in the year to June had come to be increasingly dominated by domestic demand.

The domestic spend-up is expected to lift real GDP (gross domestic product) growth to 2.8 per cent in the year to March 2004 up from the 2.2 per cent forecast in the Budget Update.

GDP growth is expected to remain at 2.8 per cent for the year to March 2005, and to decline to 2.5 per cent in the year to June 2005.

Dr Cullen said the strong domestic demand could in general be explained by robust employment and household wealth, and more immigration, while declining export earnings were explained by the increasing exchange rate.

However Dr Cullen said the pace of domestic demand growth was expected to abate over the course of 2004, with the housing boom expected to have run its course and households easing back on other spending.

Dr Cullen said a rebound in global growth anticipated from mid 2005 would "provide a grater stimulus to exports, with the exchange rate acting as less of a drag given its assumed decline".

Over the same period domestic demand is expected to slow despite steady business investment and rising infrastructure investment as households consolidate their financial position.

CPI inflation is expected to fluctuate between 2.0 and 2.5 per cent over the next five years.

Dr Cullen said the current account deficit is forecast to rise to 6 per cent of GDP by early 2005 due to the strong domestic demand and high exchange rate.

- NZPA


Full details of DEFU