26 Feb 2014

Biggest growth in seven years predicted

8:27 am on 26 February 2014

An economic think-tank is predicting the economy will grow by 3 percent this year, which would be its best performance in seven years.

The New Zealand Institute of Economic Research (NZIER) says the recovery from the recession in 2007 is now fully under way. It says this year's growth will be driven by the Canterbury rebuild and people returning to normal spending and investment patterns.

The institute expects the Reserve Bank to start raising the official cash rate from its historic low of 2.5 percent in March.

Its principal economist, Shamubeel Eaqub, says that will moderate the recovery, but not by much.

"Higher mortgage rates will make it difficult for existing borrowers," he says, "but more importantly it will reduce the demand for new borrowers. On average we expect the economy growth rate to ease back a little because of rising interest rates but we don't expect a sharp slowdown."