The current recession will be relatively shallow and last until the first quarter of next year, according to the New Zealand Institute of Economic Research (NZIER).
The New Zealand economy declined in the first half of 2008, according to official data. NZIER says in its quarterly predictions that there was also negative growth in the second half of the year and the lowest point will be the March 2009 quarter.
It forecasts economic activity to contract 0.1 per cent in the year to March 2009.
The recovery will be led by an upturn in private consumption from the first half of next year, and strengthening global economic growth from the second half of next year, NZIER said.
That rise in private consumption would be stimulated by lower petrol prices, lower interest rates, positive net immigration, wage inflation following the high inflation and tight labour market of this year, and the tax cuts of October and next April.
NZIER forecast "modest" growth for the four quarters of 2009, leading to 1.6 per cent growth in the year to March 2010, before accelerating to 3.3 per cent growth in the year to March 2011.
The recovery would be more gradual than previously forecast.
That was partly because of the lagged effect of prolonged high interest rates and tighter credit requirements in recent months that would dampen growth in investment more than previously anticipated.
Secondly, the weaker growth of this country's trading partners would dampen growth in net exports during the next 12 months more than was anticipated.
"People are already starting to see more money in their pockets in many households, but there's a lagged effect before consumers have the confidence to start increasing their spending again," NZIER senior economist Johannah Branson told Radio New Zealand on Tuesday.
The ANZ bank was sounding less optimistic on Monday, saying the coming 12 months would be the most challenging this economy had faced in more than two decades.
"We will not be going through a recession `lite'," ANZ said.
"Not when we have a current account deficit of 8.4 per cent of GDP, which is not showing any signs of improvement in the near term, judging from another dismal trade deficit of $942 million recorded in October."
