By BRIAN FALLOW
The New Zealand Institute of Economic Research forecasts moderate, export-led economic growth for the coming year.
But a wide gap has opened between growth in exports and growth in domestic demand.
Although the institute expects that gap to narrow as higher export earnings filter through to the domestic economy, it forecasts that export growth will continue to outstrip the domestic sector during the next four years.
In annual average terms, it says gross domestic product growth has slowed from 4.2 per cent in the year to March 2000 to 2.5 per cent in this March year, largely because of weakness in household spending.
Households have had to contend with rising prices and interest rates, while wage growth has been weak and the housing market soft.
But the institute predicts growth will lift to 3.4 per cent in the year to March 2002 as higher export earnings filter through to the domestic economy.
The two-speed economy is reflected in producers' prices. Output prices for firms in the tradeables sector (exporters and importers) have risen strongly in the past year, while prices in the non-tradeables sector have increased much less.
While the producers of tradeable goods are increasing output prices at a rate comparable to rises in their input prices, producers of goods and services in the non-tradeables sector are unable to pass on higher costs because of the general weakness in domestic demand, the institute says.
This shift in relative prices means that exporting has become more profitable than selling to the domestic market and that importing has become less profitable. It should therefore encourage exporting and discourage importing, benefiting the balance of payments.
But there is a risk that growth among trading partners will slow more than forecasters expect.
"That could put a dent in our export-led growth," the institute said.
"In our forecasts we have household spending picking up in mid-2001 as higher export returns begin to flow through to the domestic sector. There is a risk it will take longer."
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