Economists see inflation within RBNZ's 1% to 3% target band next year

Economic forecasters have trimmed their growth estimates, according to the latest New Zealand Institute of Economic Research (NZIER) consensus forecasts.

The downward revisions, NZIER says, largely reflect expectations of weaker investment growth.

"Recent developments have been mainly positive, and point to economic activity picking up. Consumer and business confidence are also recovering. Nonetheless, expectations for annual average economic growth remain below 3% out to 2019. Forecasters expect growth to ease to 2.2% in the March 2016 year, before recovering to 2.7% by March 2018. An expectation of softer business investment is the key driver behind the downward revision to the growth outlook," NZIER says.

A weaker New Zealand dollar will weigh on business investment, NZIER adds, given the higher costs of imported machinery.

"Expectations for the unemployment rate have lifted slightly. The third quarter unemployment rate was higher than expected, reflecting a surprise contraction in employment in the quarter. Forecasters still expect further modest growth in employment over the next few years, with the unemployment rate expected to ease to 5.6% by 2019."

Here's more from the report.

Consensus forecasts indicates economic growth will soften further over 2016, before picking up in 2017. Annual average economic growth is expected to drop to 2. 2% in 2016, and then lift to 2.5% in 2017 and 2.7% in 2018. Forecasters expect 0. 6% quarterly GDP growth in the September 2015 quarter, when the data is released on 17 December

Forecasts of housing construction growth have again been pared back for the coming year. That said, the level of activity is expected to remain very high out to 2018. There is a solid pipeline of work, and the continued surge in net migration will provide a further boost to housing demand. This is particularly the case in Auckland, but there are signs demand is broadening across the regions.

Forecasters have revised down expectations for the NZ dollar. A high degree of uncertainty remains over where the NZ dollar will head over the next few years, but the consensus is the NZ dollar will ease through to 2019. Forecasters expect the NZ dollar TWI to average 71.3 for the year to March 2016, 67.8 for 2017 and 67.8 for 2018. Some expect the NZ dollar TWI to fall below 63 by 2018.

Near -term inflation expectations have eased slightly, but all expect annual inflation to lift back to the RBNZ’s 1% -3% target band next year. The consensus is for annual inflation of 1.3% next March. Inflation pressures remain subdued, with businesses finding it increasingly difficult to raise prices.

The recent depreciation in the NZ dollar should boost the price of imported goods over 2016.

Forecasters have revised down expectations for interest rates over 2016 and 2017. There has been increasing speculation in recent months the RBNZ may take the OCR below 2.5%. The consensus survey was taken before the RBNZ December Monetary Policy Statement, when the RBNZ cut the OCR to 2.5% and signalled it did not expect to cut further .

And the full NZIER report is here.