The New Zealand economy has been recovering from recession
but slumping house sales are a significant risk to an
optimistic outlook for the economy, New Zealand Institute of
Economic Research principal economist Shamubeel Eaqub says.
NZIER released its June quarterly predictions yesterday.
Mr Eaqub said house sales, which lead economic growth by
about six months, had slumped nearly 20% in the past six
The NZIER expected the economy to grow by 3.5% this year,
with the growth driven by increased spending and investment
by households and businesses.
The Canterbury rebuild remained a prominent feature, although
economic growth was broadening to more regions.
The impact from last year's drought was also less than in
2008 and was now boosting rural growth, he said.
Auckland house prices had surged to record highs, with
investor demand driving the Auckland market.
''In an investor-driven market, sales and prices can turn
rapidly. A sudden stop in house prices could make banks more
careful in lending. This would put the brakes on broader
Slowing growth in China was another risk, Mr Eaqub said. New
Zealand sent more than 20% of its exports to China.
The indirect links through Australia and other countries
exposed to China might be even more important, particularly
for exporters outside dairy, meat and forestry.
The Reserve Bank had been raising interest rates and was
expected to do so next month, followed by a pause if the
economy slowed too quickly, he said.
Further rises were likely to cool the Auckland housing
''The Reserve Bank will be wary of causing a housing bust in
the provinces and sectors outside of Auckland which are not
overheating,'' Mr Eaqub said.