Recovery outlook slows again – NZIER

The latest batch of collated forecasts from the New Zealand Institute for Economic Research show New Zealand’s economic prospects settling down for a period of slow, grinding growth.

Perhaps the most revealing part of the latest set of consensus forecasts, released this morning, is the investment outlook.

Typically, an economic recovery sees a surge in business investment. There is a degree of catch up – businesses tend to postpone investments in things like plant and machinery during a recession.

The uncertain nature of the current recovery can be seen in the wide range of forecasts for investment (see graph). Although part of the gap appears to be because some of the forecasts are taking into account the Canterbury earthquake and some are not, the main reason is the outlook is so uncertain and it is not at all clear when enough confidence will have recovered for investment to pick up again.

Marked uncertainty also affects the overall outlook for growth. While on average the forecast is for the recovery to continue at a slightly slower rate than previously anticipated, that average hides the fact that the range of forecasts has widened from 1.4% to 4.4%.

On average, growth is expected to strengthen to 3.1% in the March 2012 year (down from 3.3% in the previous survey). Economic growth is forecast to ease to 2.6% in the March 2013 year.

That continued uncertainty is though to have an effect on employment prospects. Most economists appear to have downgraded their forecasts for the unemployment rate to improve, says the institute.

“Forecasters predict a modest rise to 6.2% in the March 2011 year, worse than 5.9% forecast in the previous survey. This follows a surge in the unemployment rate in the June 2010 quarter (from 6.0% to 6.8%).”

“The unemployment rate is expected to gradually improve to 5.3% in the March 2013 year as the recovery accelerates.”