New Zealand economy set to grow despite low inflation: forecasts

An independent economic think-tank has revised up expectation of growth of New Zealand on the back of a stronger outlook for household spending while expectations of inflation and wage growth remain modest.

The Consensus Forecasts from the New Zealand Institute of Economic Research (NZIER) on Monday indicated expectations of robust economic growth through to 2019, with annual average growth expected to pick up to 2.9 percent in 2018, before moderating to 2.6 percent in 2019.

However, there was a large degree of uncertainty over the growth outlook beyond 2016, with annual average growth forecasts for the March 2019 year range from 1.6 percent to 3.2 percent, said the NZIER report.

"The stronger housing market, phenomenal population growth and lower interest rates have encouraged households to spend," said the report.

"Forecasters expect household spending growth will be even stronger over the next few years. Improved consumer confidence is boosting discretionary spending on big-ticket items and eating out."

Expectations of stronger household spending would also boost imports, while expectations of export growth beyond next year had been revised down on the basis of a weaker global outlook.

Forecasters expected jobs growth to accelerate, but wage growth forecasts had been revised slightly lower as a result of the expanded labor supply from strong population growth.

The inflation outlook also remained subdued, with the consensus expectation that annual inflation would not edge back to the Reserve Bank of New Zealand's 2-percent target, the midpoint of its 1-percent to 3-percent target range until 2018.

The Reserve Bank was expected to cut its official cash rate -- currently at 2.25 percent -- further in order to lift inflation to its target range, said the report. Endit