NZIER principal economist Shamubeel Eaqub headed his latest quarterly predictions "Seven years of economic famine" by saying there was little economic growth and the outlook was challenging.
Low interest rates were not encouraging new borrowing and investing as New Zealanders paid down debt or deleveraged.
"Periods of deleveraging typically last seven years. We still have the second half of the adjustment to traverse."
NZIER expected only 1.5% growth this year, rising to 2.5% in 2013.
The rebuild in Canterbury would ramp up gradually from mid-year through to 2013.
"We are less optimistic than most on the timing of the rebuild, as we think persistent aftershocks, tougher building codes and insurance issues will slow Canterbury's recovery," he said.
As well as the sovereign debt crisis in Europe, slowing Australian and Chinese economic growth were the two key external risks facing New Zealand.
The slow-down in Asia-Pacific growth would curb demand for New Zealand's goods exports and tourism, Mr Eaqub said.
Growing global risks, falling commodity prices and slowing exports meant it would be a tough year ahead.
The Reserve Bank would hold its official cash rate steady until early 2014 and might cut interest rates if the European debt crisis worsened, he said.
Mr Eaqub's prediction on the OCR is well away from that of other economists, who believe the first rise will come in March next year, moving from 2.5% to 2.75% before reaching a high of 4.25% in September 2014.
BNZ markets economist Stephen Toplis yesterday moved out the BNZ's rate-hike forecast from December to March, in line with other major banks.
"To be clear, this is not owing to any slam-dunk piece of news - the likes of which we've been waiting, and waiting, for on which to hang a delayed OCR call.
"Yes, the situation in Europe is either awful, or worse. Even with this, the latest consensus forecasts imply reasonable growth in New Zealand's trading-partner grouping with ongoing expansion through much of Asia and Australia, while a persistent chugging noise from the US underpins things more generally."
Mr Toplis has explicitly ruled out an easing in the OCR.
Mr Eaqub said that for households, the economic picture would remain drearily similar.
There would be few new jobs and minimal real wage growth.
Households would take advantage of exceptionally low mortgage rates to pay down debt, but that would restrain consumer spending.
Because consumer demand was anaemic, firms had little scope to increase prices, he said.
"Growth in sales must be from greater market share ... Expansion strategies will require patience and deep pockets."
