Growth tipped to remain sluggish

The European debt crisis has come back to haunt New Zealand and the risks are looking almost as bad as they were late last year, say forecasts by Infometrics.

The continuing uncertainty is limiting any pickup in economic growth, rather than dragging New Zealand down, says the forecasting group.

Economic growth would pick up to 2.1 per cent in the year to March 2013, and peak at 3.9 per cent by the end of 2014, Infometrics forecast.

The return of heightened uncertainty in financial markets threatened to undermine global growth and would hit commodity prices and growth in domestic spending between now and 2014, Infometrics said.

The downside risks to the economic outlook were almost as ‘‘intense as they were back in November last year’’.

‘‘The longer the global financial crisis and its aftermath have dragged on, the less assured business and consumers have been about a recovery occurring,’’ the report says.

European problems since the end of last year had set back the timeline of a recovery by at least another six months.

There was the prospect that ‘‘heightened uncertainty’’ would become a semi-permanent feature of the economic landscape, Infometrics said.

Decisions on farm spending, investment and hiring would be further delayed by Europe’s problems and doubts about the immediate chances for China’s growth.

China’s economic growth has slowed since it hit a peak of almost 12 per cent a year in early 2010. It is expected to grow between 7 per cent and 9 per cent a year in the next few years.

However, Infometrics stressed it had only made minor cuts to international growth forecasts since March.

For now

it was the increased risk of ‘‘a significantly more negative outcome for the world economy’’ that would affect New Zealand, rather than a real shift in global economic fundamentals.

In the medium term, New Zealand was well placed thanks to its mix of export commodities, with strong growth in demand for food throughout developing Asian countries, which should keep New Zealand’s terms of trade high.

Better global conditions, a rebound in the terms of trade, some catchup on private-sector investment and the Canterbury rebuild would drive growth close to 4 per cent by late 2014.

The peak would be short-lived and was still relatively lacklustre after five years of underperformance between 2008 and 2012, Infometrics said.

Growth is expected to ebb in the two years after 2014 because of modest population growth, an ageing population and changes in the makeup of Chinese economic growth, the forecast report says.

The outlook for the job market is also weaker than Infometrics expected earlier this year.

Job growth is expected to hover at just a little more than 1 per cent a year for the next two years.

‘‘Firms will concentrate on getting more output from their existing workers, delaying taking on more staff until it is absolutely necessary,’’ Infometrics said.

As a result, unemployment is expected to remain high and still be above 6 per cent by mid-2014.

The lack of any significant recovery in the job market would slow migration and population growth.

Annual net migration was expected to reach a low of a net loss of 6000 in the second half of this year and stay negative till late next year.

Infometrics also significantly revised down forecasts for domestic spending in the next two years.

It is projecting domestic spending growth of 3.2 per cent for the two years, down from 4.1 per cent.