Forecaster picks slow recovery start by Christmas

The economic slowdown will continue into the last quarter of the year, but a sluggish turnaround is on the cards, the latest economic research says.

New Zealand Institute of Economic Research quarterly predictions for June showed another period of contraction before positive growth returned in December.

While that was a positive outlook, chief economist Shamubeel Eaqub said there was unlikely to be a significant bounce.

"We expect job losses, subdued wage inflation and restrained profitability to remain in place for some time," he said.

GDP would not revert to pre-recession levels for at least two years, he said.

The long slow path of recovery predicted in the report was because of the rebalancing needed, and the steady increase of unemployment over the long term.

"We've had a very housing-centric and consumer-centric growth in jobs and economic activity."

Consumers' appetite and ability to incur further debt was diminishing fast and he said households now looked to be retrenching on a "balance sheet reparation path".

Forced into a corner through slower wage growth and less disposable income, consumers would have to get used to spending less, he said.

Canterbury Chamber of Commerce chief executive Peter Townsend said a decline in domestic spending was a concern but businesses were making inroads with reducing their costs and seeking efficiencies where they could.

"They are saying if this is as bad as it gets then we are going to get through this thing okay."

The NZIER prediction was that unemployment would top out at 7.6 per cent in 2011, but Mr Townsend said that was not bad news.

"When you look at Ireland heading for 16 per cent and Spain heading for 18 per cent unemployment and we get through the world's biggest meltdown with 8 per cent that's not bad."

He agreed any recovery was going to be slow.

"The world is de-blinging itself; in other words we are getting away from all the crap you bought just because you wanted to buy it."

The positioning of food products was critical, with the only option for a small export-focused country being high-end niche products that competed on integrity and quality.

"People have to get used to that, we cannot compete on price."

- © Fairfax NZ News