1 Sep 2009

Unemployment tipped to rise to 8% - NZIER

4:54 pm on 1 September 2009

Economic forecaster NZIER is predicting unemployment will peak at 8% late next year, while the New Zealand economy will return to growth but remain fragile.

In its quarterly predictions, the New Zealand Institute of Economic Research anticipates the economy will have shrunk by 1.8% in the year to March 2010.

Towards the end of this period, growth is expected to resume, before hitting 3% in 2011.

The institute's principal economist, Shamubeel Eaqub, says things will remain tough for households, as unemployment could rise to 8% or more, and businesses, which are still "doing it tough" restrict hiring.

Mr Eaqub downplays the prospect of a swift bounce-back from the recession, saying leading indicators are giving mixed signals.

The value of the New Zealand dollar needs to be reduced to underpin a sustainable recovery, he says, but lowering the Official Cash Rate further would not do much for currency or the economy.

The forecaster's view is in line with comments by Reserve Bank Governor Alan Bollard on Monday in which he warned the recovery could be derailed if financial markets take another downward turn.

Dr Bollard said credit is still scarce and unlikely to support a housing boom.