NZIER on economic growth

Brian Fallow at NZ Herald reports:

The economic recovery will pick up speed only slowly, the New Zealand Institute of Economic Research says, as households shed debt and the Government withdraws stimulus amid anaemic world growth.

“The economy is stagnant,” says principal economist Shamubeel Eaqub, in the institute’s Quarterly Predictions, released today.

Historically low interest rates are not encouraging new borrowing and investing, as households and businesses focus instead on paying down debt.

Eaqub said periods of deleveraging typically lasted seven years, which would imply we still had the second half of the adjustment to go.

It is a good thing we are paying off debt, and saving more. But it does mean will remain fairly low for some time – in my opinion. No more debt fuelled growth followed by a crash hopefully.

The economy eked out growth of 1.1 per cent last year and is forecasting 1.5 per cent this year before it picks up to 2.5 per cent next year.

NZIER is among the more bearish forecasters. The consensus is 2.2 per cent growth this year and 3 per cent next year.

“We are less optimistic than most on the timing of the [Canterbury] rebuild, as we think persistent aftershocks, tougher building codes and insurance issues will slow Canterbury’s recovery,” Eaqub said.

I’m down in Christchurch on Friday, so will be interesting to see how the rebuild is going. I think the really big issues are the cost of the new building code, and the private insurers.

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