|New Zealand's economic recovery is expected to be longer and slower than previously thought due to weak global demand and the worsening European debt crisis, according to the country's economists.
The economy is expected to grow from 1.2 percent in the year ending March this year and by 3.1 percent in the year to March 2014, the New Zealand Institute of Economic Research (NZIER) announced Monday in its Consensus Forecasts.
The Consensus Forecasts, which gives the average forecasts from seven major banks, the NZIER, the Treasury and the Reserve Bank of New Zealand (RBNZ), said the results reflected the "subdued domestic economy and large global risks."
"Global demand is anemic and the European debt crisis is going from bad to worse. This is creating uncertainty that delays firms' investment plans. A weak demand environment means businesses cannot raise prices much, so inflation is low," it said.
As a result, the RBNZ, the central bank, was likely to delay raising interest rates.
Last year's Consensus Forecasts had put GDP growth at 1.8 percent to March this year and 3.2 percent to March 2014. The average forecast for the year to March 2013 had slipped from 2.7 percent to 2.1 percent.
The main causes for the downward revisions are the delayed rebuild of the earthquake-battered Canterbury region and the worsening global economic situation.
"There are many risks to the outlook. Exporters face a difficult future with weak global demand and the NZD (New Zealand dollar) remaining elevated. Households are saving rather than spending, and public spending is slowing as austerity kicks in across the advanced economies."
Forecasters expected households to reduce private consumption over the next three years as they paid off debt and preferred to save, and consumer price inflation would be restrained to an average 2.1 percent, well within the RBNZ's inflation target range of 1 percent to 3 percent.
Interest rates were expected to remain lower for longer, with the 90-day bank bill rate forecast to average 2.9 percent over the next three years.
The slow economic recovery would help the fiscal balance improve from a deficit of 9.8 billion NZ dollars (7.76 billion U.S. dollars) in the 2012 fiscal year ending June to a deficit of 3 billion NZ dollars in 2014.
The global risks and Eurozone crisis would keep the New Zealand dollar high, along with concern over slowdowns among New Zealand's key trading partners like China and Australia.