NZIER expects solid economic growth for next five years

Wednesday, 31 May 2017

NZIER expects economic growth to continue over the next five years.

A combination of strong net migration, tourism and higher dairy payouts point to solid economic growth over the next five years, an economic think tanks says.

But a stronger economy and higher inflation will also result in homeowners paying higher interest rates on their mortgages, the New Zealand Institute of Economic Research (NZIER) says in its latest Quarterly Predictions report.

The rural sector was helped by Fonterra's increased dairy payout.

Senior economist Christina Leung said: 'We expect annual growth in the New Zealand economy to track around 3 per cent on average over the next five years.'

But heightened geopolitical tensions could risk a downturn in the global growth outlook, Leung said.

Reserve Bank Governor Graeme Wheeler is not expected to raise the official cash rate during his term, which ends this year.

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'As a small open economy, New Zealand will not be immune to any downturn in the major economies.'

Population growth, tourism activity and high demand for residential construction and new hotel developments and office space has put a spotlight on the construction industry.

Migrant labour helped ease the shortage of construction workers, Leung said.

The dairy industry was boosted by Fonterra's increased dairy payout for the current season and another increase forecasted for next season.

Leung said these payouts would provide an income boost to the rural sector.

Annual inflation rose to 2.2 per cent for the year to March.

High food and petrol prices were key drivers behind the lift in inflation over the March quarter, but the higher prices might not persist, Leung said.

Underlying inflation was expected to lift over the long term and remain around 2 per cent over the medium term, she said.

NZIER expected the Reserve Bank to begin lifting the official cash rate (OCR) in mid-2018.

The OCR remains at an all time low at 1.75 per cent, while New Zealand's major banks have been steadily raising mortgage rates.