IMF sees strong growth for New Zealand, flags medium-term housing risks

WELLINGTON (Reuters) – The International Monetary Fund (IMF) said on Tuesday that it expected New Zealand to show robust economic growth this year, but noted the housing market still posed medium-term risks to the economy.

The IMF expected New Zealand’s economy to grow by 3 percent in the near term as the Labour-led government raised social services spending and implemented an ambitious residential construction program.

That was largely in line with New Zealand’s 2017 growth of 2.9 percent growth, but a step up from the IMF’s earlier estimate of 2.75 percent for this year.

The slowdown in the country’s previously red-hot housing market had reduced New Zealand’s economic vulnerabilities, but the high level of household debt remained a concern, the IMF said.

“Household debt remains relatively high and it could possibly amplify the impact of downside shocks,” Thomas Helbling, the IMF’s Australia and New Zealand Mission Chief, told a media briefing following an annual Article IV visit to consult on New Zealand’s economy.

The politically sensitive housing crunch has seen prices rise more than 50 percent nationally in the last decade, with prices in the city of Auckland almost doubling in that period.

Housing inflation eased throughout 2017 as central bank mortgage lending restrictions took hold and investors held off buying during a turbulent election period.

Helbling welcomed the new government’s plans to increase housing supply via its ‘Kiwibuild’ construction program and to extend taxes on residential investment.

It also suggested that the government go further and add debt-to-income restrictions to the central bank’s policy toolkit in case house price inflation took off again.

The IMF, however, was less enthusiastic about the government’s looming ban on most foreigners from buying homes, saying that was “unlikely to have significant impact” in reducing house prices.

“The role of foreign buyers has really not been that significant recently. If there are bans I think you may worry about the signal (it sends),” said Helbling, suggesting it could deter overseas firms planning to invest here.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.