New Zealand economy forecast to grow by 3 pct this year

Strong population growth, construction and tourism will be the key drivers behind solid economic growth in New Zealand for the next few years, according to a forecast from an independent economic think-tank Wednesday.

Economic activity picked up over the second half of 2015, reflecting growth in the non-dairy sectors and annual GDP growth was expected to recover to around 3 percent this year and average 2.5 percent for the following years, according to the Quarterly Predictions report from the New Zealand Institute of Economic Research (NZIER).

However, the current volatility in global financial markets was a reminder of how quickly sentiment could change, said a statement from the NZIER.

Despite the pick-up in economic activity, inflation in New Zealand remained very weak, largely due to lower petrol prices.

However, lower petrol prices had also reduced costs for households and businesses and encouraged spending, and while wage growth was subdued, it was still outpacing consumer price inflation, resulting in real wage growth for many households.

The very low inflation environment contrasted with continued strength in asset prices, particularly in the housing market.

While the Reserve Bank of New Zealand (RBNZ) was increasingly mindful of the consequences of excessively loose monetary policy on asset prices and financial stability, a key issue was whether the New Zealand economy had enough momentum to ride out the uncertainty in the global outlook.

The NZIER expected the RBNZ would hold the official cash rate at 2.5 percent over 2016 and much of 2017. Endit