The economic outlook is flat but a slow recovery is all part and parcel of getting our household and government finances in order, according to the NZIER.
Principal economist Shamubeel Eaqub, in releasing the NZIER's latest quarterly predictions for the five years ahead, said a sluggish recovery was a necessary evil for a sustainable growth path.
"We expect only 1.5 percent growth in 2012, recovering to 2.4 percent in 2013. The rebuild in Canterbury will ramp up gradually from mid-2012 through to 2013. We are less optimistic than most on the timing of the rebuild, as we think persistent aftershocks, tougher building codes and insurance issues will slow Canterbury’s recovery”.
A flat economy will make it harder for the government to return to surplus in 2015 without significant policy changes, he said.
The NZIER expects May's Budget to reprioritise spending.
Eaqub said it would like to see a reduction in low-value spending, such as interest-free student loans and KiwiSaver subsidies, and savings could then be used to reduce the deficit and increase investments in infrastructure, education and training.
Meanwhile, the global economy is slowing with activity in Asia and Australia offsetting brighter data from the US.
But the risk of a global financial crisis time in Europe has eased, he said, with the European central bank shoring up banks with cheap long-term funding.
The NZIER is tipping the OCR to remain at 2.5 percent until mid-2013.
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