New Zealand Economy Out Of Recession: NZIER

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The New Zealand economy is out of recession, the New Zealand Institute of Economic Research said in a report on Tuesday. The institute assessed continued improvement, but expects the next few quarters to be bumpy as the economy slowly converts the rebound into recovery.

According to NZIER's Principal Economist Shamubeel Eaqub, there are still significant risks to the economy from renewed over-valuation in the housing market, rising unemployment, persistent external imbalances, rising oil prices and eventual withdrawal of monetary and fiscal stimulus. Given the weakness in the economy and risks to the outlook, there is little urgency to hike interest rates.

The institute expects the central bank to raise interest rates from the second half of 2010. However, the extent of tightening is likely to be less than in recent years. The institute forecasts the Reserve Bank of New Zealand to raise the OCR towards 5.5% by mid-2011, starting in the September quarter of 2010.

The institute estimates the economy to shrink 0.9% in the 2009 calendar year and forecast a subdued 2.6% recovery in 2010. Further, the institute forecasts a full fledged recovery in household spending in late 2010, when the labor market improves. The jobless rate would possibly head higher towards 8% in mid-2010, from the current 6.5%. The think-tank noted that businesses adjusted to weaker demand by cutting back hours rather than firing staff.

The New Zealand economy is out of recession, the New Zealand Institute of Economic Research said in a report on Tuesday. (Market News Provided by RTTNews)