RTTNews - Tuesday, the latest Consensus Forecast quarterly report for New Zealand by the New Zealand Institute of Economic Research said the economy is likely to contract 1.6% in the year ending March 2010, compared to a 0.6% drop expected three months earlier. However, the think-tank expects a recovery with 2.8% growth in the year ending March 2011, higher than a 2.7% growth forecast made three months earlier.

The NZIER Consensus Forecasts are an average of economic forecasts compiled from a survey of financial and economic agencies.

On a quarterly basis, the GDP is now expected to decline further by 0.6% in the second quarter after a 1% contraction expected for the first quarter.

The report pointed out that despite signs of stabilization, about 60,000 jobs are expected to be lost over the next year with subdued wage inflation over the next two years. The jobless rate is forecast to rise to 7.2% in March 2010 and stay at that level in the following year. Wage inflation is expected to slow to 2.6% in 2009-10 and then ease further to 1.7% in the year ending March 2011.

Inflation forecasts are also revised downwards, with NZIER expecting the consumer price inflation to slow to 1.6% in March 2010 and remain in the lower part of the Reserve Bank's target band until the end of the forecast period.

Private consumption by households is now expected to decrease 0.7% over the next year compared to the March forecast of a 0.1% rise.

Regarding the external sector, the outlook for the balance of payments showed an improvement. Exports are expected to fall by 4.2% over the next year, while imports are expected to decline by 12.1%.

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