By Brian Fallow
WELLINGTON - The economy is growing slowly but surely, with the emphasis on the "slowly", the New Zealand Institute of Economic Research says in its latest quarterly forecasts.
The recovery now under way will gather pace, but only gradually, until it peaks at around 4 per cent growth in
2001.
The institute said the growth rate of 2.9 per cent it forecasts for the year to March 2000 did not represent a strong bounce back, given the economy shrank last year.
Activity would not recover to its pre-recession level until the September quarter this year.
"Indications are consumption growth is not about to slow," it said.
"High retail sales, growing consumer confidence and rising job advertisements all point to a stronger year. On top of this house prices are on the rise, increasing the wealth of homeowners and inducing them to spend further. Lower interest rates leave more money in borrowers pockets, although lenders are now receiving less."
Business investment is expected to rebound, though in a more muted way than in the upturn of the early 1990s. But the export situation remained very vulnerable, the institute said, with some sectors yet to show convincing signs of improvement. Manufacturing had been going through a "quite crisis" with exports only now starting to show signs of growth.
Now that Asian economies were bottoming out, growth in New Zealand's trading partners should recover to about 1.9 per cent in 1999 , from 1.2 per cent last year, and continue rising though not, the institute thinks, to the levels of 4 to 5 per cent common before the Asian crisis.
The dollar's depreciation aided price competitiveness, though less so in the key Australian market where Asian competitors gained more advantage from sharper falls in their exchange rates.
Agricultural exports are not expected to recover quickly from the twin effects of weak prices and drought. Tourism, by contrast, had recovered quickly and strongly.
The institute expects the Reserve Bank to tighten monetary policy in the December quarter as inflationary pressures re-emerge. The tightening phase continues until March 2001 but is milder and more gradual than in the past, with 90-day bill yields peaking at around 7 per cent.
