Why NZ economy will grow faster than widely expected

Westpac economists are stepping out of the pack and predicting the economy will rebound next year with the same kind of enthusiasm often seen in the past.

Westpac is forecasting 3.5 percent growth in the 2010 calendar year, and in a note today pointed out that was the highest of 16 economic forecasters by some margin. The next highest forecast is 3 percent, the mean is 2.4 percent and the lowest a measly 1.3 percent, while the Reserve Bank plumped for 2.5 percent.

And despite the Westpac prediction being so far out on its own, its chief economist Brendan O'Donovan and research economist Dominick Stephens said the risks to their forecast for next year were that it could be too low.

This country tended to experience "very high" growth in gross domestic product in the years following recession, and there was no reason to suppose this time would be different, the economists said.

However, they did acknowledge there were some aspects of the economy that people could point to as being different from the past.

They included the fact the exchange rate had not stayed low for long, there had been a dramatic global financial crisis, "NZ Inc" had a record level of indebtedness, and the damage to the secondary finance sector would limit the availability of property and equipment finance.

But among offsetting factors the exchange rate was higher because commodity prices had rebounded much more quickly than normal after a global downturn, the Westpac economists said.

The world was also no longer so United States-centric, with strong growth in demand from emerging markets, while the response to the global crisis had been extraordinary fiscal and monetary policy stimulus around the world.

"What is startling is how many factors are currently behaving similarly to precursors of past strong recoveries."

* Asset prices, particularly housing and equities, had rebounded strongly,

* the country was experiencing a mini migration boom,

* forecasts of global activity continued to be revised upward,

* a dramatic shortfall in houses being built would be a multi-year source of economic growth in a nascent recovery,

* restocking of the extremely low inventory cycle would reinforce the economic recovery, and

* leading indicators, such as business and consumer confidence, were, if anything, stronger than in most other economic recoveries.

"In all recessions and economic recoveries, people tend to say `this time is different'," the Westpac economists said.

"In the absence of 1970s style supply shocks or late 1980s/early 1990s systemic banking problems, we'd hazard to say that this time will not be different."

The note showed that in 23 recessions in this country dating back to 1870, before the current one, the average size of economic rebound in the year after recession was 6.4 percent. Since World War 2 it was 4.8 percent.