'Seven years of famine' tipped for NZ – economist

While not talking another recession, principal Institute of Economic Research economist Shamubeel Eaqub says the outlook is for a biblical-like "seven years of famine".

New Zealand faces a long, slow grind out of the post-global financial crisis environment, says the Institute of Economic Research.

The economic think tank’s latest update says the country’s high level of indebtedness, plus an upturn in the number of emigrants to Australia and other countries, means any pick up in the economy won't happen quickly.

While not talking another recession, principal economist Shamubeel Eaqub says the outlook is for a biblical-like "seven years of famine".

“Periods of deleveraging typically take seven years – that takes us to 2014-15,” he told NBR ONLINE.

“Everything is moving slowly. These adjustments always take time but this one is really slow.”

The institute’s forecast is for 1.5% GDP growth this year and rising to 2.5% through next year.

He notes the Reserve Bank recently changed its stance on the economy and likely interest rate rises – “they’re putting more emphasis now on the risks to growth facing the economy, rather than on inflation".

"That is absolutely the right thing to do,” he says.

One other constraint is the exodus of talent to Australia, which has picked up pace in recent times.

“The sustained outflow of migrants is a drag on the economy. This will gradually reverse as the Australian economy slows and mining investment plans get scaled back.”

However, the exodus risks leaving a long-term deficit, he says.

“The shrinkage of the under-40s population is damaging for the economy, as this cohort represents future growth potential through entrepreneurship and labour market participation.

“This age group also tends to create demand for new homes and durable goods – for example, many two-car households are in this age group.

“This demographic hollowing out is unevenly distributed among regions. Rural areas face greater hollowing out than urban and larger areas.

"The population is also ageing rapidly as baby boomers reach superannuation.

“Population growth has slowed as more people leave New Zealand. Population growth has slowed from 1% a year recently to just 0.6% in the past year.

“Worryingly, the under-40s population declined by 0.2%, while the over 65s grew by 4%. Ageing pressures are here and will intensify.

“For businesses, this means changing consumer demand patterns and a need to carefully plan labour requirements and succession.”

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