The New Zealand Institute of Economic Research is expecting further improvements in the economy in coming months, but warns the next few quarters will be bumpy.
Surging housing prices, rising unemployment, a persistent current account deficit, higher oil prices and eventual withdrawal of monetary and fiscal stimulus still pose a risk to the economy, it says.
In its latest quarterly predictions, NZIER forecasts that the economy will contract by 0.9% in the 2009 calendar year, less than the market consensus of 1.6%.
The institute is picking growth of 2.6% next year, more than the market prediction of 2%, due to stronger export-led growth.
The institute expects the Reserve Bank to raise the Official Cash Rate toward 5.5% by mid-2011, starting from the September quarter next year.
