The NZIER Consensus Forecasts are an average of New Zealand economic forecasts compiled from a survey of financial and economic agencies. These are not NZIER's forecasts. The average forecasts do not necessarily represent the views of individual participants. Forecasts are for March years, e.g. 2012/13 refers to the year ended March 2013.

The recovery is expected to be lower and last longer, according to the latest issue of NZIER's Consensus Forecasts. The economy will still grow; from 1.2% in the year ending March 2012 to 3.1% by 2014.

A more moderate recovery reflects the subdued domestic economy and large global risks. Households are deleveraging and fiscal headwinds will temper growth. The Canterbury rebuild is being delayed by uncertainty over the building code and insurance settlements.

Global demand is anaemic 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. As a result the RBNZ is likely to delay raising interest rates.

GDP growth lower for longer

The recovery is now expected to be much slower. Growth forecasts have been revised downwards for the third successive survey. The main drivers are a delayed Canterbury rebuild and a worsening global situation.

Economic growth will be modest in the March 2012 year (1.2% from 1.8%), but accelerate in 2013 (2.1% from 2.7%) and 2014 (3.1% from 3.2%).

There are many risks to the outlook. Exporters face a difficult future with weak global demand and the NZD remaining elevated. Households are saving rather than spending, and public spending is slowing as austerity kicks in across the advanced economies.

Economic growth is expected to be 0.5% in the March 2012 quarter .

Uncertainty over Canterbury rebuild

The Canterbury rebuild is forecast to be later and take longer. Residential construction will be weak in the March 2012 year (- 11%) but forecast to surge by 21.9% in 2013 and a further 26.5% in 2014.

There is a wide range of forecasts for residential construction, reflecting uncertainties in forecasting the extent and timing of the rebuild.

Lack of demand from consumers

Demand in the economy is very weak. Households continue to pay off debt, preferring to save than spend. Forecasters now estimate private consumption will be reduced across the next three years.

Consumption growth in 2012 has been revised downwards by 0.9% from the March survey. This weak demand environment will make life difficult for both retailers and manufacturers.

Inflation subdued, expectations unchanged

Consumer price inflation is expected to be restrained, averaging 2.1% over the next three years. This average is unchanged from the March survey. This is comfortably within the RBNZ's 1%-3% inflation target range.

Interest rate increases delayed to 2013

Interest rates are expected to remain lower for longer. This is because there is anaemic growth, weak demand and inflation is subdued. The 90 day bank bill rate is forecast to average 2.9% over the next three years, down from 3.1% in the March survey. Economists expect modest increases in the 90 day rate to begin in late 2013 or early 2014.

Fiscal surplus will take time

A slow economic recovery will keep the fiscal position in deficit for longer. The fiscal balance will improve from a $9.8 billion deficit in the June 2012 year to a $3 billion deficit in 2014.

This is in spite of strict fiscal austerity. Public consumption growth in 2012 is forecast to be just 0.5%, down from 1.6% in the March survey. Over the next three years, public consumption growth will average just 0.3%.

Exchange rate elevated amidst global risks

The NZD is forecast to remain elevated on a trade weighted basis. This reflects a worsening global situation, with the Eurozone debt crisis a major risk. Of further concern are slowdowns amongst New Zealand's key trading partners like China and Australia.

Weak global demand and a high exchange rate are risks to New Zealand's exports. Forecasters expect reduced export growth in 2012, revising their estimates to 1.7% (down from 2.6% in March).

Borrowing costs to fall

Economists expect overseas borrowing to become cheaper. Forecasts for 10-year government bonds have been trimmed by 0.5% for 2013 and 2014. This reflects a low interest rate environment globally.