Wellington  - The New Zealand economy, which has been in recession since early last year, faces a "long, slow grind" back to normality, the country's leading economic think tank said Tuesday.

"Several years of sub-trend growth lie ahead," the New Zealand Institute of Economic Research (NZIER) said in its latest quarterly predictions commentary.

Predicting that the economy contracted 1.5 per cent in the year ending this month, it said, "Annual growth will slowly move into positive territory of 1.1 per cent by March 2010 (or just 0.2 per cent growth in real GDP per capita), before gradually improving to around 3 per cent by 2013."

The economists noted that New Zealand entered the recession with the lowest unemployment rate, 3.4 per cent, in modern times, but that had risen to 4.6 per cent by the end of last year.

They predicted unemployment would pass 6 per cent by this time next year and remain around that level until mid-2012.

The NZIER analysts rejected other forecasts that unemployment would move into double figures, saying the recession was not yet forecast to be as deep and long as in the last downturn in 1991, when it reached 10.9 per cent.

Meanwhile, the New Zealand dollar was trading at just over 49 US cents, its lowest value since November 2002, after falling nearly 30 per cent since January. It peaked at 81 US cents in March last year. dpa