Solid growth forecast for New Zealand economy over next 5 years

New Zealand's economy is likely to grow by more than 3 percent on average over the next five years, driven by immigration and tourism, a leading economic think-tank forecast Wednesday.

Net migration -- the number of arrivals over departures -- was continuing to set new records, boosting demand across many sectors, said the New Zealand Institute of Economic Research (NZIER) in its Quarterly Predictions report.

Construction and tourism were expected to remain key drivers of growth, and a recovery in global dairy prices was boosting confidence in the rural regions, said a statement from the NZIER.

"With businesses feeling more optimistic about demand holding up at high levels, many are planning for expansion through hiring and investment," it said.

However, it also warned of heightened geo-political risks from offshore.

"From the unpredictability of U.S. President (Donald) Trump's policy actions to the ongoing political uncertainty across Europe, the shift towards protectionist and anti-establishment sentiment skews risks to the downside," it said.

Annual inflation edged back into the Reserve Bank of New Zealand's target band of 1 percent to 3 percent in the December 2016 quarter for the first time since September 2014.

Inflation was expected to continue to rise as capacity pressures broadened beyond the construction sector and retailers found it easier to raise prices.

The forecast said the Reserve Bank was expected to keep the official cash rate -- currently at an historic low of 1.75 percent -- on hold until mid-2018 before embarking on "a measured tightening cycle." Endit