The worst of the economic recession could be behind us, according to a leading research organisation.
NZIER yesterday released its September quarter update saying it believed the economy had reached the bottom of the recession trough which had started in March, with a likely return to private consumption-led growth later this year.
"The increases in energy and food prices appear to be past their peak. Interest rates have started to ease, albeit slowly. Wage growth, which always lags behind the conditions in the labour market, will remain high," according to the report's editor, Brent Layton.
Tax cuts would boost the economy and Mr Layton said he doubted the property market would fall from current levels.
"We think it will be supported by private investors looking for safe havens for their funds which they are now very reluctant to leave with finance companies. The sharemarket is unlikely to be an attractive alternative to many of these people."
While the NZIER believed the bottom of the recession had been reached, Mr Layton doubted there would be a rapid "full recovery to robust economic health".
The threat of inflation remained and could go higher, but he warned July's easing of the official cash rate by the Reserve Bank had fed inflationary expectations, constraining its ability to lower rates further in the short term.
"We are likely to have relatively high rates for some considerable time and this will tend to support the value of the currency and constrain investment and job growth."
The economy had been hit by a salvo of negative factors, which had resulted in three consecutive negative GDP quarters starting in March of this year, Mr Layton said.
The economy shrank 0.3% in the March quarter and Mr Layton said domestic trading activity indicated the June quarter GDP also declined, with a further decline expected in the quarter ending this month.
This recession was unusual in that it had impacted on all three areas of economic activity - consumption, investment and external sectors.
Private consumption had been hit by rising energy and food prices, higher interest rates and falling house prices which saw real consumption decline 0.4% in the March quarter.
Total investment fell 2% in the same quarter as housing investment and net migration declined, and although export prices had remained relatively strong, the volume of exports of goods and services had fallen 1.8% in the same period.
