Economy tipped to grow 1.8 percent in 2010

New Zealand's economy is tipped to record growth of 1.8 percent in 2010, according to credit agency Dun and bradstreet.

The company, in its 2010 Economic and Risk Outlook Report issued today, said that internationally the risk of sluggish and weak growth this year was becoming increasingly apparent despite the healthy pace of expansion that was occurring in the global economy entering 2010.

More than 60 countries around the world were expected to record lower output in real terms in 2010 than they did last year's world crisis.

The report said that major emerging markets such as China and India continued to experience rapid economic expansion and both the United States and Europe had pulled out of recession.

However, the winding down of stimulus programmes around the world, high unemployment and a continuation of subdued bank lending were likely to result in a slowdown during the course of 2010. Those countries most closely integrated with the US economy in particular, were expected to continue to suffer from the effects of muted US demand.

Despite predicting a global slowdown, the report forecast positive economic growth at a global level and a promising outlook for New Zealand.

World economic growth was expected to hit 2.0 percent this year and 2.3 percent in 2011. This comes on the back of estimates which indicate that the global economy contracted by 2.2 percent in 2009.

Meanwhile, with the recession having officially ended in New Zealand in the June quarter, subsequent data releases were supportive of an economic recovery. In addition, New Zealand's key trading partners were expected to record positive economic growth this year however, Japan was expected to face a contraction in 2011.

According to John Scott, Dun and Bradstreet's New Zealand general manager, 2010 looked relatively promising for many economies around the world, however markets were increasingly appreciating the risk that a renewed economic slowdown could occur this year.

"2010 looks significantly more positive than last year however, as we predicted during 2009, this year will challenging," said Mr Scott.

"Government stimulus packages underpinned much of the growth recorded last year and with these packages scheduled to be unwound in 2010, the stimulus will need to be supplanted by private demand if economies are to continue on their current growth trajectory."

Mr Scott said governments and firms needed to be aware of the risks which could significantly disrupt the return to solid economic growth and ensure they were prepared to manage them effectively.

"To avoid significant disruptions and maximise medium term growth prospects will require a solid focus on pro-business policies," he said.

This year would continue to reveal the differences in exposure of individual economies to the credit crisis, with the outlook for New Zealand's key trading partners varying significantly.

Positively for New Zealand, whose economic fortunes were closely linked with Australia, the neighbouring nation was entering 2010 in a much healthier state than most developed markets and was well placed to benefit from the global recovery.

China was also expected to perform solidly, with the risk outlook for the developing nation generally encouraging. China looked to be focused on boosting domestic consumption and strategic industries in 2010, and Dun and bradstreet forecast that China would sustain economic growth of more than 7.0 percent this year.

New Zealand and Australia were both forecast to record GDP growth of 1.8 percent this year.

Australia's growth rate was expected to outpace New Zealand in 2011 with GDP growth of 2.6 and 2.2 percent respectively. This followed estimates which indicated that the New Zealand economy contracted by 1.0 percent in 2009.

"The latest economic data and forecasts indicate that we can expect a stronger performance from New Zealand firms in 2010 than we saw in 2009," said Mr Scott.

"Generally high business confidence levels are in line with the largely positive data flow that has emerged from New Zealand since the June quarter 2009. These factors bode well for the year ahead."

Mr Scott said the Reserve Bank was expected to begin raising the Official Cash Rate during the year.

"These costs are likely to flow on to households and firms and as such, there is still room for caution in this relatively optimistic scenario."