KEY POINTS:
We can expect an agonisingly slow improvement in economic growth over the next three years, a report out today says.
Growth would be underpinned by terms of trade boom, infrastructure investment and employment growth, Business & Economic Research (Berl) economist and editor Ganesh Nana said in the independent forecaster's quarterly report.
"The economy is definitely still growing, and that's the good news," he said.
Berl predicts GDP will grow from 2 per cent in the year to March 2007 to 2.5 per cent next year and 2.6 per cent in 2009.
He said an unfortunate side effect of the Reserve Bank's recent intervention in currency markets was to reinforce some concern that the economy was in some sort of crisis.
"That couldn't be further from the truth. But, coupled with the collapse in business confidence and the migration turnaround, there is a danger of, not for the first time, talking ourselves into a downer."
He called the intervention "welcome, but overdue" and said the Reserve Bank should be given an exchange rate target built into its monetary policy framework.
While an attempt to manage the exchange rate lower was unlikely to succeed, frequent bank entries into the market could drive out speculators, allowing the kiwi to be based more on economic fundamentals.
Growth was likely to be driven by on-going consumption growth, government investment and modest export growth.
Nana said the rise in dairy prices could herald a new era for economic growth.
"Or, it may be seen primarily as a source of inflationary evil."
While Berl's assessment is of an economy retaining significant momentum, the drag of high interest rates and slower migration picture would limit growth.
- NZPA
