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Renewed global slowdown threatens New Zealand economic recovery: NZIER

(Xinhua)

08:34, September 01, 2011

WELLINGTON, Sept. 1 (Xinhua) -- The New Zealand economy should grow by 1.4 percent this year and 2.6 percent in 2012 as the country sheds its debt, but weak global growth is threatening its recovery, according to the independent New Zealand Institute of Economic Research (NZIER).

The predictions were in line with a slow and gradual economic recovery, said the NZIER September 2011 Quarterly Predictions.

"The New Zealand economy is on the mend, but weak global growth is threatening this recovery," said NZIER principal economist Shamubeel Eaqub.

Prices and volumes of exports, a key economic support, could be affected by a renewed global slowdown, particularly without the buffer from Australia, while tensions in global markets would see the New Zealand dollar remain higher for longer.

"An abrupt slowdown in the Australian economy, renewed recession fears in the U.S. and a spreading sovereign debt crisis in Europe will soften global growth. New Zealand's economic growth will be slow," said Eaqub.

"We expect economic growth of 1.4 percent and 2.6 percent in 2011 and 2012 calendar years respectively. This is consistent with a slow and gradual economic recovery, with continued deleveraging. "

The commentary recommended the Reserve Bank of New Zealand ( RBNZ) should avoid raising interest rates while the global economy was so vulnerable and the New Zealand dollar so high.

The NZIER expected the RBNZ to raise interest rates from June 2012, after previously forecasting a rise from March next year.

It advised cautious rises as 83 percent of mortgages were short term, meaning a 1-percent point interest rate increase would raise the annual national mortgage bill by 1.4 billion NZ dollars or 2.2 percent of annual retail spending.

It said the earthquakes that have buffeted New Zealand's second city of Christchurch and the surrounding Canterbury region since September last year might have permanently diminished the region's economy.

Although the earthquakes had not affected recorded economic activity much, other indicators suggest the impact was "real and large," with 26,000 private sector job losses and a population loss of around 2,000 through overseas migration.

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