N.Z. Economy to Recover on Spending, Trade, Institute Says

Dec. 1 (Bloomberg) -- New Zealand’s economy is likely to grow in 2010, buoyed by consumer spending and global demand for exports, according to the New Zealand Institute of Economic Research Inc.

The economy will expand 2.6 percent next year after shrinking 0.9 percent in 2009, the Wellington-based institute said in quarterly predictions published today. Growth won’t return to pre-recession levels until 2012, it said.

New Zealand emerged from its worst recession in three decades in the second quarter, when gross domestic product increased 0.1 percent. Another quarter of contraction is possible as the jobless rate rises and the construction industry faces slowing demand, the institute said.

“The next few quarters will be bumpy as the economy slowly converts the rebound into recovery,” said Shamubeel Eaqub, principal economist at the institute. “There are still significant risks to the economy from renewed over-valuation in the housing market, rising unemployment, persistent external imbalances and rising oil prices.”

Given the risks, there is little urgency for Reserve Bank Governor Alan Bollard to raise the benchmark interest rate from a record-low 2.5 percent, Eaqub said. He expects borrowing costs will be unchanged until September 2010.

Household spending will recover in late 2010 once there are signs of an improving labor market, he said. The jobless rate may rise to 8 percent next year from 6.5 percent in the third quarter, the institute forecasts.