Forecasts for NZ Economy – Post Earthquake

The Bank of New Zealand (BNZ) have come out with some forecasts for the years ahead.

As expected GDP growth is forecast to down 1.5% through 2011 but will pick-up more than in 2012, 2013 when economic activity is expected to be higher with the Canterbury rebuild – see graph below. There have been suggestions that the Reserve Bank (RBNZ) drop interest rates to remedy the situation but this is not the appropriate tool at present. Governor Alan Bollard said ” The Reserve Bank have been working hard to assist the recovery as fast as possible in terms of access to financial markets.

There is still a worry that the underlying inflation rate will inflation will increase – the 9/10’s of the economy that is not Christchurch based. A weaker NZ dollar accompanied by higher commodity inflation, including the recent spike in oil prices, only adds to upside inflation pressure

Outlook for Interest Rates
Instead of contracting monetary policy in September rumour has it that the bank will increase in January 2012. So the RBNZ will push the OCR higher from its present 3%, towards a 2013 peak of 5%.

Currently at 6.8% it is expected to fall during the Rugby World Cup as it stimulates growth and ultimately jobs. Furthermore with increase economic activity in the rebuilding process that figure is expected to fall further in 2012 and 2013.

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