The "bounceback" of domestic demand in New Zealand's economy may be weaker than in past recoveries, the OECD says."The overhang of private sector indebtedness, 'sticky' unemployment and lingering uncertainty... may hold back investment,&quo
The "bounceback" of domestic demand in New Zealand's economy may be weaker than in past recoveries, the OECD says.
"The overhang of private sector indebtedness, 'sticky' unemployment and lingering uncertainty... may hold back investment," the Organisation for Economic Co-operation and Development said today in an economic outlook for 87 countries.
"Though inflation remains subdued, long lags in monetary policy transmission call for the extreme policy stimulus to start to be withdrawn soon."
In New Zealand, BNZ analysts have said this week's robust inflation expectations figures have added to the case for the RBNZ to begin withdrawing monetary stimulus sooner rather than later, and they predicted a lift of 25 basis points in the official cash rate next month.
The OECD said that globally, trade flows were again rising.
"Strong growth in China and other emerging markets is helping to pull other countries out of recession, but at the same time, the risk of overheating and inflation is growing in emerging markets."
A boom-bust scenario could not be ruled out, which would require further tightening in countries such as China and India with a knock-on effect of slower growth in other regions.
Instability in sovereign debt markets posed another serious risk at a critical time for the world economy, said OECD secretary-general Angel Gurría. Although economic activity was picking up, the growth in jobs is not keeping pace.
The OECD outlook contained some scenarios that went out as far as 2025 and showed that without strong policy decisions, growth will remain mediocre, unemployment and fiscal deficits high and imbalances persistent.
In New Zealand, it predicted a lift in gross domestic production (GDP) of 3.9% in 2011, compared with 2.5% in 2010 and minus-1.6% in 2009.
Consumer price inflation is predicted to lift from 2.2% this year to 2.5% next year, with the "core" CPI (excluding food and energy) also rising 2.5% in 2011, even though it will be only 1.8% this year.
New Zealand's unemployment rate is expected to drop from 6.2% in 2009 and 2010 to 5.6% in 2011.
As a percentage of GDP the current account balance will change from minus-3.5% this year to minus-6% in 2011.
