‘Sluggish’ growth for 2012
Lower growth will make it more difficult for government to return to surplus by 2015
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Economic growth is not likely to show any major pickup in the near future, says the latest New Zealand Institute of Economic Research update.
The institute’s latest set of quarterly predictions outlines 1.5% growth for the 2012, moving to 2.4% next year, but this level of growth is needed to recover from the debt binge of the past decade, says principal economist Shamubeel Eaqub.
“The slow recovery is a necessary part of putting household and government finances in order,” he said.
However the government still has to deal with this issue more determinedly, he said, as the flatter economic growth outlook will make it harder to reach the goal of returning to surplus by the 2014/15 year.
“We would like see a reduction in low value spending, such as interest free student loans, working for families and KiwiSaver subsidies. These savings should be used to reduce the deficit, and to increase investments in the economy, in infrastructure, education and training in particular.”
Finance Minister Bill English yesterday announced this year's budget will be delivered on 24 May.
The risk of “financial Armageddon” has now receded, but that New Zealand’s key Asian markets are coming off their recent run of explosive economic growth and this will affect New Zealand directly and also indirectly through the country’s largest trading partner, Australia.
“Key Asian export indicators have slumped. Activity in key Australian states, NSW and Victoria, has slowed sharply. This is offsetting brighter data from the USA. This is a risk to New Zealand exporters. But the risk of another global financial crisis, this time in Europe, has eased.”
The sluggish growth and the subdued local inflation means the Reserve Bank is likely to keep its official cash rate at the current 2.5% until the middle of next year.
“Any increases in interest rates should be contingent on convincing evidence of a sustained economic recovery and inflation pressures.”
Rob Hosking
Thu, 01 Mar 2012
Thu, 01 Mar 2012
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‘Sluggish’ growth for 2012
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