NZ economic growth 'unspectacular'

Last updated 17:01 07/06/2012

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The New Zealand economy is shuffling forward, according to the latest BusinessNZ Economic Conditions Index.

While dipping confidence in the rural sector and weakening international commodity prices remain threats, there are positive factors to the New Zealand economy according to the index.

While business investment levels were low and consumer confidence poor, the historically low interest rates and focus on reducing business and household debt were positives.

"With inflationary pressures low, pressures on commodity prices easing, and relatively subdued household demand, the case for any interest rate rises in the foreseeable future is very slim," BusinessNZ said in its report.

The consensus view among economists was that the Reserve Bank will hold the Official Cash Rate steady at 2.5 per cent in its next Monetary Policy Statement due out next week.

On the negative side, falling commodity prices have led to Fonterra's payout being cut by 30 cents for the 2011/2012 season to $6.45, with a further drop to between $5.95 and $6.05 expected for the upcoming season. That's causing farmers to reduce spending with flow-on impacts to rural communities.

The business advocacy group also said companies, in general, were continuing to take a 'wait and see' attitude to new investment with low hiring levels of additional staff.

But the focus on debt reduction by businesses and households was important given New Zealand's vulnerability to changes in international investor sentiment, it said.

Inflation was expected to be well within the Reserve Bank's 1-3 per cent target for the year to June 2013 but under pressure for the year to June 2014, when it's forecast to hit 2.8 per cent.

BusinessNZ said that although the recent Budget could be considered fiscally responsible, the business community would have liked to see more action on interest-free student loans. It also claimed the Government was in danger of being in catch-up mode if it continued to only gradually reform health and social welfare.

Both Treasury and private sector forecasters were predicting GDP growth to be at 3 per cent by 2014, which BusinessNZ said was hardly spectacular.

"The rebuild of Christchurch is a big factor which will make or break the forecast for growth ... Currently, it is as if everyone is waiting for the starter's gun but is not exactly clear when it will go off."

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