Friday, March 7, 2008

Reserve Bank of NZ slashes growth forecast

Three months ago, the Reserve Bank of New Zealand forecast economic growth of 2.6 percent for the next two years, to March 2009 and 2010. Yesterday, that forecast was cut back to 1.9 percent.

The bank blamed the worsening outlook on weaker prospects for world growth, a rise in interest rates because banks were having to pay more to borrow overseas, a sharper-than-expected slowdown in the housing market and recent drought.

It said it expected house prices to fall about 5 percent this year. It is thus more optimistic about prospects for property than those economists have said they expect a drop of up to 10 percent.

"It is quite some time since we have seen house prices come off like this," RB governor Allan Bollard said.

The Reserve Bank believes house prices remain overvalued by as much as 30 percent.


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