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Inflation weighs heavily on New Zealand economic forecasts

Xinhua, March 14, 2016 Adjust font size:

Economists are expecting New Zealand's economy and employment to grow over the next three years, although the outlook for inflation and wage growth is subdued, according to a survey of economic forecasts out Monday.

Forecasters have pushed back by around a year expectations of when headline inflation would get back within the Reserve Bank of New Zealand's 1-percent to 3-percent inflation target band, said the New Zealand Institute of Economic Research (NZIER) Consensus Forecasts.

However, the consensus was still for headline inflation to edge close to the 2-percent midpoint target from the second half of 2017, said an NZIER statement.

Recent developments pointed to an improvement in economic activity, and the consensus was that this would flow through to stronger growth in the subsequent years.

Economic growth is expected to pick up to an annual average rate of 3 percent in 2018, before moderating to 2.5 percent in 2019.

Although expectations of an improvement in growth over the next two years was widespread, growth prospects for 2019 were more uncertain, with annual average growth forecasts ranging from 1.3 percent to 3.1 percent.

In particular, expectations for household spending and residential construction had been revised up markedly beyond 2016 as strong migration-led population growth had boosted demand across many sectors and lifted housing demand.

The labor market outlook was also more favorable, with expectations of stronger employment growth and a lower unemployment rate.

The unemployment rate was expected to ease to 5.1 percent by 2019, but wage growth was expected to be more subdued, in line with the weaker inflation outlook.

Last week the Reserve Bank cut its official cash rate by 25 basis points to 2.25 percent, citing the headline inflation rate of 0.1 percent as a cause for concern. Endit