30 May 2012

Modest pickup forecast by NZEIR

8:08 am on 30 May 2012

The Institute of Economic Research is forecasting a modest pickup in economic activity over the next couple of years, with debt-conscious households and Europe's ongoing woes keeping a lid on growth.

The NZIER is forecasting growth of 1.5% this year, rising to 2.5% next year, well below the Treasury's growth predictions in last week's Budget.

It says low interest rates will spur households to repay debt faster, rather than borrow more, while low real wage growth will curb demand.

Internationally, the effects of Europe's debt crisis will dampen Chinese growth, and along with falling commodity prices, is expected to crimp exporters returns.

NZIER principal economist Shamubeel Eaqub says it means the Official Cash Rate will stay at a record low of 2.5% until early 2014.

He says growth for companies will come from expanding market share, because there is no appetite for price rises among consumers.