Lift on radar after false alarms

By RICHARD BRADDELL

WELLINGTON - The long-awaited recovery of the economy appears to be in full swing after a few false starts, the NZ Institute of Economic Research reports.

In its latest quarterly predictions, the institute forecasts that economic growth (GDP) will rise to 3.2 percent in the March 2000 year and 4.2 percent the following year.

However, the pickup will be more subdued than the explosive growth in the 1994/95 recovery. And while improved outlooks for trading partners will be an impetus, their overall growth will still be down on pre-Asian crisis levels.

Tourism, with the help of a lower New Zealand dollar, is leading rising export volumes and there are tentative signs of growth in manufacturing.

But supply constraints mean agricultural exports will not recover so quickly.

"Despite a promising start to the dairy production season, and the second highest lambing percentage on record, stock numbers will take time to rebuild. As the same time, world commodity prices are yet to register a sustained recovery," the institute said.

The domestic economy is also unlikely to experience runaway growth given that the ability of household's to borrow is constrained by high debt.

Y2K and New Zealand's current account deficit, set to balloon out to 7.9 percent of GDP next before edging back to 5.3 percent in 2003/4, were also concerns.

"But for the first time in quite a while, we are starting to see some upside risks in our forecast," NZIER said.

Growth in Asian crisis economies had exceeded expectations, and growth in Australia and the US had defied gravity and expectations over the last few years.

"In addition, the dairy season is looking fairly strong. Although we have factored in some improvement, agricultural production has a habit of exceeding expectations on both the downside and the upside."