'Solid' 2.3% growth rate tipped for NZ

The International Monetary Fund’s 2.3% growth prediction for the New Zealand economy is reasonably unspectacular, but a solid result nonetheless, economists say.

“It is a better performance than we had been recording in the global economy of late,” Mike Jones, currency strategist at BNZ, says.

Business New Zealand economist John Pask agrees, saying 2.3% is reasonable and in line with most forecasting group’s expectations.

“I don’t see that were will be any major material impact. This was widely predictable. I doubt it will have any shock treatment you might expect.”

The prediction, announced by the IMF yesterday, saw the kiwi rise to 82.15 US cents from 81.62 cents after Prime Minister John key’s attempts to talk it lower during a trade mission in Jakarta, Indonesia.

The IMF raised its forecast for global growth for the first time in more than a year, predicting the world economy at 3.5% in 2012, compared to a January projection of 3.3%.

The Washington-based IMF said the US should expand 2.1% this year, while New Zealand’s growth is predicted to be 2.3%.

“This is a much better performance than most of our trading partners, the likes of the UK, Europe, Japan, even the US who have all recorded lower rates of growth," Mr Jones says.

"I think given the international headwinds at play 2.3% is quite a solid result.” 

While the 2.3% growth projection is positive, it is not without risk and, according to Mr Jones, represents the middle ground between two extremes.

“On the one side you could have a global growth meltdown like we saw during the credit crisis and New Zealand could go into recession.

"The other plausible scenario is the construction in Canterbury goes ballistic and growth in New Zealand rockets to 4% or 5 %,” he says, adding that the 2.3% projection is a “shoot through the middle”.

Mr Pask says that while forecasts are an imperfect science - dependent on which models are used and how the data is interpreted - it is better than no forecast at all.

“I think the IMF is well respected international organisation and the result is largely predictable,” he says.

The forecast is set to contribute to the already strong dollar, despite Mr Key’s jawboning.

Mr Jones says the positive New Zealand story is already known in domestic and international markets and that is precisely why the currency is as strong as it is.

“Investors look at those contrasting economic fortunes and quite rightly think about putting their money in growth assets in New Zealand. That demand boosts the New Zealand dollar,” he says.

Mr Pask, however, believes the quality of government regulation, transparency in decision-making and monetary policy, among others, also count when the international investors decided to invest in New Zealand.

“Obviously, if you have an unstable economy that is not good for investment but specifically in terms of whether this outlook is going to have any major effects, I don’t think so.”