Interest rate rise on cards as economy prospers

By JIM EAGLES business editor

Healthy consumer spending and a continued flow of migrants have economic forecasters improving their predictions for the New Zealand economy.

The same factors are also strengthening predictions that the Reserve Bank will start raising interest rates, probably in May, but possibly as early as next week.

Two major quarterly economic forecasts issued yesterday - from Deutsche Bank and Business and Economic Research Ltd (Berl) - both predicted faster growth over the next two years.

Deutsche Bank, the more confident of the two, now expects the economy to grow by a historically impressive 3.2 per cent this year and 3.9 per cent next.

The confidence displayed in the two forecasts is reflected in an ACNielsen survey of the Asia-Pacific region, which found New Zealand the most economically optimistic of the eight countries studied.

It is also strongly supported by the ANZ Jobs Ads survey, yet another positive piece of economic news released yesterday, which showed the number of jobs advertised last month increased sharply.

Both quarterly forecasts point to strong consumer spending, a surging housing market, rebounding tourism numbers and strong inward migration as the major factors driving growth. But they also believe the global economic situation will be better than previously expected.

Only last week the Institute for Economic Research cut back slightly its own growth forecasts because of a fairly gloomy view of the global scene. But Deutsche Bank chief economist Ulf Schoefisch said the international economic indicators were looking more positive.

"The picture is changing very rapidly," he said, "and the information coming in is looking better every day."

Not even disappointing news on the overseas trade front could dampen the optimism.

Statistics New Zealand said yesterday that our terms of trade worsened more than expected in the final three months of last year and export volumes slumped.

But Berl's senior economist, Dr Ganesh Nana, said that was pretty much what had been expected.

"We knew our terms of trade could not possibly continue at 40-year highs. We couldn't be that lucky. But the point to remember is they will still be very favourable by the standards of recent years."