Recession here 'may last four years' - NZIER

A leading economic research group is warning it may not be possible to protect jobs during the downturn, despite widespread agreement such an approach should be a priority.

And it is saying recovery from the current recession may not be on the horizon until around 2012.

In its latest quarterly predictions commentary, published today, the NZ Institute of Economic Research (NZIER) is looking to a focus on job retention to mute unemployment growth.

"As the economic outlook weakens, unemployment forecasts have been revised upwards. We forecast New Zealand's unemployment rate to pass 6 per cent by this time next year and to remain around this level until mid 2012," the institute said.

"Some forecasters expect unemployment to rise much further. In our view, after the tight labour market of recent years, firms are looking for more flexible ways to manage lower labour needs without losing workers who were only recently so difficult to find."

The institute warned that if the economic outlook worsened further, hoarding labour might become less practical, and firms might have to shed labour.

"The current recession is not yet forecast to be as deep and long [as 1991] and the likelihood of unemployment moving into double figures is still extremely low," the institute said.

"Over the next year, the combination of lower interest rates than in 2008, lower petrol prices, still relatively high wage inflation, further tax cuts in April 2009 and growing immigration will stimulate a modest increase in private consumption.

"The upturn will be gradual, as consumers remain cautious in the face of rising unemployment."

Dairy export volumes would start to recover during the next year. Economic growth in New Zealand's trading partners was expected to strengthen during 2010.

"We emphasise that this will be a long, slow grind back to economic normality. Full recovery will take some time - around four years for the New Zealand economy to return to over 3 per cent annual growth."

- NZPA