Economy expected to grow despite downbeat businesses

The economy will continue to post solid growth despite downbeat business sentiment, slowing immigration and the Mycoplasma bovis threat, says the Institute of Economic Research (NZIER).

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In its latest quarterly predictions, NZIER said businesses were doing well, even if they did not sound confident.

“Although businesses remain downbeat in the wake of the new government taking office, own trading activity is holding up. This suggests demand remains solid”, NZIER principal economist Christina Leung said.

She said the domestic economy would continue to be buoyed by construction and household demand, even though the gains from immigration were falling.

Ms Leung said the export outlook was also brighter, with Fonterra‘s recent increased forecast for the milk price payout for the current and next season a good indicator for the export outlook.

“However, the recent outbreak of Mycoplasma bovis poses downside risks, particularly to confidence in the agriculture sector which had only just started to recover,” Ms Leung said.

Economic growth is forecast to stay around the 3 percent level for the next few years, while the level of growth per head of population was expected to lift to about 2 percent by 2022.

The NZIER said there was no reason for the Reserve Bank to start raising interest rates, and it expected the first move would be a rise in the middle of next year.