NZ growth forecast slashed by IMF following quakes

New Zealand's growth forecast has been slashed by the International Monetary Fund (IMF) because of the devastating earthquakes in Christchurch.

In its twice-yearly World Economic Outlook, the IMF said the recent earthquakes would slow economic activity to 0.9% this year, compared with a 1.5% growth in gross domestic product (GDP) for 2010.

However, reconstruction efforts would reignite growth next year, with GDP growth likely to rise to 4.1%.

The IMF said last month that it had cut the country's growth forecast of 3% for 2011 after analysing the economic effects of the 7.1-magnitude quake in September and the deadly 6.3-magnitude aftershock on February 22.

The current account deficit was forecast to fall to 0.2% of GDP from 2.2% in 2010, and then widen to a deficit equating to 4.4% of GDP, the IMF said today.

The current account is expected to improve on the back of insurance payments to cover the earthquakes, before an increase in imports due to reconstruction the following year.

Consumer price inflation was forecast to jump to 4.1% this year before slowing to 2.7% in 2012.

Finance Minister Bill English said today the earthquakes would cost the Crown around $8.5 billion over the next two years, which would largely be met through debt. The total cost was expected to be around $15b.

The Reserve Bank cut the official cash rate 50 basis points last month to 2.5% to help bolster the economy, despite a jump in the annual inflation rate to 4% in December on the back of a rise in GST and other price pressures.

In Australia, GDP was forecast to grow 3% in 2011 and 3.5% in 2012 after key mining and agricultural regions were hit by flooding.

Growth for the Asian region as a whole is tipped to decline to 6.7% in 2011 from 8.2% last year, and then 6.8% in 2012.

The region was benefiting from strong domestic demand and resilient exports, the IMF said.

The IMF reports showed the fastest growth was still in emerging economies, led by China's forecast 9.6% growth this year, followed by India, at an 8.2% rate.

In contrast, the US was forecast to grow a sub-par 2.8% this year and 2.9% in 2012.

In Europe, the IMF said recovery was gaining traction despite financial turbulence in Greece, Ireland and Portugal. The IMF revised up its euro zone outlook to 1.6% this year and 1.8% in 2012.

Soaring oil prices and inflation in emerging economies posed risks to global recovery but were not yet strong enough to derail it.