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A strong economy with some constraints

NZ Newswire logoNZ Newswire 7/05/2017

Economic growth in New Zealand is expected to be fairly steady at about 3 per cent this year, stepping up to 3.5 per cent next year, while interest rates won't rise until late 2018.

That's the view of ASB, a unit of Commonwealth Bank of Australia, in Quarterly Economic Forecasts.

ASB chief economist Nick Tuffley says low interest rates, strong population growth and solid demand for New Zealand exports will continue to drive growth.

But constraints on tourism and construction mean they won't sustain their recent growth pace, Mr Tuffley says.

"The surge in visitors to New Zealand over the past few years is increasingly stretching accommodation capacity and, while that's spurring more hotel investment, it will take some time to catch up," Mr Tuffley says.

The Reserve Bank of New Zealand is expected to hold the official cash rate until late 2018, despite headline inflation hitting 2 per cent.

That'll be a relief for people who have taken on large mortgages while rates have been low.

ASB says household demand appears to have strengthened during the past year, with a strong labour market and low interest rates contributing to increased consumer confidence.

"Although interest rates are starting to lift off lows, we expect a steady OCR to keep short-term borrowing costs anchored at low levels for borrowers."

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