Key Points:

New Zealand's economy will remain in recession all next year before lower interest rates, increased government spending and higher exports help to stimulate gross domestic product growth, according to an OECD report.

The Organisation for Economic Cooperation and Development, whose 30 members are mostly high-income countries, released its biannual economic outlook last night.

The OECD forecast New Zealand's GDP growth at 0.5 per cent in 2008, cut by a third from its June report, and then contracting by 0.3 per cent in 2009, slashed from a previous forecast of 2.1 per cent growth.

Inflation was seen at 4 per cent in 2008, slowing to 2.3 per cent in 2009. Inflation hit an 18-year high of 5.1 per cent in the year to Sept. 30.

"Despite a near-term boost from tax cuts and a bounce back from drought, only modest macroeconomic improvement is projected until mid-2010," the report said.

It noted the year has so far seen a sharply slowing housing market, job losses, and a large current account deficit, which will take time to be resolved.

The Reserve Bank of New Zealand (RBNZ) has cut rates by a total of 175 basis points since July to help the economy and is expected to cut by at least a further 100 basis points to 5.5 per cent at its Dec. 4 monetary policy statement.

- additional reporting by Reuters