2 Sep 2008

Worst of downturn is over - NZIER

7:13 am on 2 September 2008

The New Zealand Institute of Economic Research says it looks like the worst of the economic downturn is over.

The NZIER forecasts the economy will expand by 0.5% in the 12 months to March next year, compared to an earlier prediction of 1.9%.

It says the bottom of the downturn has already been reached: increases in energy and food prices have peaked and tax and interest rate cuts should boost confidence and spending later this year.

House prices should not fall much further from their current levels as investors divert their money from finance companies and the sharemarket into property.

However, director Brent Layton says growth will be constrained as inflation pressures could limit the ability of the Reserve Bank to cut interest rates.

He expects the bank will reduce the Official Cash Rate to no lower than 7%. The OCR is currently 8%.