WELLINGTON - The economic recovery will broaden and gather pace as an improving outlook for Asia flows through to the export sector, says Deutsche Bank in its latest quarterly economic forecasts.
It is forecasting annual average gross domestic product growth of 3.3 per cent in the current March year,rising to 4 per cent next year.
Growth forecasts for New Zealand's trading partners have been revised upward over the past three months.
Deutsche Bank, for example, forecasts growth of 2.8 per cent this year in Asia (excluding Japan), a turnaround from 0.4 per cent last year and rising to 4 per cent next year.
"Overall, the world outlook suggests a significant strengthening in export income over coming years, both in terms of volumes and prices," said Deutsche Bank chief economist Ulf Schoefisch.
Household consumption, which has propelled the recovery so far, is expected to rebuild to around 3 per cent a year for the next three years, with only the weak state of farm incomes preventing a stronger increase.
That reflects two influences: the comparative mildness of last year's recession preventing wages growth from falling much below 3 per cent, and the prospect of a prolonged period of mortgage rates which are low by historical standards.
Mr Schoefisch said rising domestic inflation pressures, as businesses rebuild profit margins, unit labour costs rise and the housing market revives, would mean the Reserve Bank raises the official cash rate 50 basis point to 5 per cent in November. He expects the cash rate to peak at 7.5 per cent in three years time, still well below the 10 per cent levels 90-day yields hit last June.
Even though household debt, in relation to incomes, is about half as large again as it was coming out of the last recession, low interest rates mean that debt servicing costs have not increased to the same degree and are falling as a percentage of (rising) disposable incomes.
It also expects net migration to turn positive, though stabilising at a level around 2000 a year, well below the Government's target of 10,000.
In the meantime the recovery in world commodity prices is expected to see the kiwi rise to 59USc by the end of the year, then appreciate more slowly to 63USc two years later.
