20 Nov 2013

NZ tipped as bright spot in world economy

9:58 pm on 20 November 2013

New Zealand will be one of the strongest growing economies among developed nations in the next couple of years, despite signs the global recovery is stuttering.

The Organisation for Economic Co-operation and Development (OECD) has sharply cut its forecast for growth this year and in 2014, citing political brinkmanship over debt in the United States and weaker prospects in emerging economies.

Bill English.

Bill English. Photo: RNZ

In contrast, New Zealand's fortunes remain robust, and Finance Minister Bill English says it is good news that the economy is set to average 3% growth over the next couple of years.

"The growth expectations have shifted from 2% to 3% over the next few years to about 2.5% to 3.5%, and we'll hopefully generate more jobs and wage increases for more New Zealanders," he says.

But unions warn unemployment is forecast to remain stubbornly high despite better growth and say the Government should do more to generate jobs.

The Paris-based OECD - made up of 34 of the world's richest countries - says that though New Zealand's economy is growing strongly, it has downgraded the growth forecast it made six months ago.

In its latest set of forecasts, the OECD expects economic activity in New Zealand to expand 2.3% this year, down from the 2.6% it predicted in May.

While the OECD downgraded New Zealand's growth slightly this year, robust domestic demand has it picking better-than-expected activity of 3.3% next year before easing to 2.9% the year after.

New Zealand is better placed than most OECD countries, as many are still struggling to generate much growth five years after the 2008 global financial crisis.

The news is also not heartening elsewhere, with global growth revised downwards to 2.7% this year, which the OECD attributes to weak prospects in emerging markets.

The OECD has lowered its forecasts for world growth since May because of the worsening outlook for some emerging economies. It says the global recovery is real but slow and there may be turbulence on the horizon, such as further brinkmanship in Washington.

There is also the possibility that, when the US Federal Reserve begins easing its current stimulus, this could bring a renewed bout of instability.

In New Zealand, the OECD has echoed recent warnings by the Reserve Bank over high house prices and indebtedness.