Finance Minister Bill English claims the International
Monetary Fund is backing the Government's approach to fiscal
''As the IMF notes in its concluding statement issued today
[Tuesday], New Zealand's economic expansion is becoming
increasingly embedded and broad-based. It forecasts annual
economic growth will increase to about 3.5% this year,'' he
The the IMF report highlighted rising house prices and a
slowdown in China as the greatest risks to New Zealand's
New Zealand's growth prospects had improved for the near
term, with business and consumer confidence strong, and
commodity prices for key exports high.
However, it warned New Zealand remained exposed to some
external risks, in particular a sharp growth slowdown in
''About two-thirds of New Zealand's exports of goods go to
China, Australia, and other parts of Asia. As such, any
adverse development in the region would have a substantial
impact on New Zealand's terms of trade,'' the IMF said.
On the domestic front, the housing sector was a ''pressing''
''With house price inflation running high, there remains the
risk that expectations-driven, self-reinforcing demand
dynamics and price overshooting could take hold.
''The Government's steps to help alleviate supply
bottlenecks, measures to tighten standards for mortgage
lending, and an increase in mortgage rates should help ease
''But a sudden price correction - possibly triggered by a
shock to household incomes or borrowing costs - could reduce
consumer confidence, impact overall economic activity, and
hurt banks' balance sheets,'' the IMF said.
Mr English said it was encouraging the IMF had again noted
the Government's macro-economic framework remained sound and
provided policy space to respond to adverse shocks.
''In particular, it concluded the Government's focus on
returning to surplus next year will help to preserve its
favourable standing with external creditors against New
Zealand's background of relatively high net foreign
Mr English agreed with the IMF that New Zealand faced some
risks, including globally from any downturn in the fortunes
of China and the rest of Asia, and on the domestic front from
issues around housing affordability.
The Government's steps to help alleviate housing supply
bottlenecks and the Reserve Bank's measures to tighten
mortgage lending and to raise interest rates should help to
ease house price pressures, he said.
The Government's deficit reduction programme was also
expected to take some pressure off the exchange rate.
''This latest report on New Zealand confirms we remain on the
right track to build a faster-growing economy and to manage
the global and domestic risks that might come our way,'' Mr
Prime Minister John Key said the Government was conscious of
the issues associated with the heated housing market.
''I think we are addressing it in the right way. We're
certainly working hard on the special housing areas. We're
certainly working hard on making sure that consenting is
"We're putting every incentive in the market to have more
homes built. We're continuing to overhaul and reform the
planning process,'' he said.
Labour finance spokesman David Parker focused on the
International Monetary Fund ''admitting'' the New Zealand
dollar was overvalued by up to 15% and suggested, while care
must be taken, there was room for innovation on monetary
''That's crippling for exporters and it's holding our economy
back. The IMF has now admitted there is scope to change the
Reserve Bank Act with head of the IMF mission Brian Aitken
saying, `there might be ways to innovate but you would want
to be careful'.''
Labour was committed to upgrading the Reserve Bank Act as
part of its Economic Upgrade policy, which would be released
soon, Mr Parker said.