1 Jun 2010

Recovery seen as fragile - NZIER

8:11 pm on 1 June 2010

The NZ Institute of Economic Research is warning the recovery is fragile and the Reserve Bank should hold off raising interest rates until at least September.

The NZIER has revised downwards its forecast of economic growth from 2.7% to 2.4% this year, and slowing to 1.8% next year, up from 1.4%.

Principal economist Shamubeel Eaqub says credit growth is weak, which will be exacerbated by rate increases and reduced Government spending.

In addition, households are saving, not spending, while business investment is muted.

Mr Eaqub also says the difficulties in debt-stricken countries like Greece may raise borrowing costs internationally and lower demand for New Zealand's exports.

The institute forecasts inflation will spike at about 5% early next year, due to higher charges and GST rises.