The International Monetary Fund is giving the New Zealand
economy a pass mark, with some warnings about problems the
country may face in the future.
A sharp slowdown in China's growth, financial market
volatility, a sustained decline in commodity prices and a
drop in house prices are the biggest potential risks facing
the New Zealand economy, according to the IMF assessment.
The global body of 188 member countries, set up to foster
international monetary co-operation, expects the New Zealand
economy to expand 3.5% this year before moderating to a trend
rate of 2.5% over the medium term.
The nation's terms of trade will continue to boost growth in
national income while moderating from near-record levels,
given a decline in global dairy prices.
Strong construction activity, driven by the rebuild of
Christchurch and more broadly a shortage of housing, was
expected to remain an important driver for near-term growth,
the IMF said.
Finance Minister Bill English took heart from the report,
saying it was the latest in a series of encouraging reports
on the New Zealand economy, confirming the country was well
placed compared with most other developed countries.
''The IMF highlights the importance of getting the
Government's books back to surplus to help the Reserve Bank
keep interest rates lower for longer.
''Under the previous government, excessive spending,
alongside the booming housing market, contributed to floating
mortgage rates reaching almost 11%,'' he said.
The IMF expected New Zealand's current account deficit to
increase to about 6% of GDP by 2016, still well below the
levels seen in the mid-2000s.
Although the longstanding imbalance remained a vulnerability
for the economy, the latest figures were encouraging, with
Statistics New Zealand showing the current account deficit at
3.4% of GDP, Mr English said.
The report included a risk assessment matrix for New Zealand
which rates a probability and impact of key risks.
A sharp slowdown in growth in China was rated a low-medium
likelihood, which would have a medium impact on the economy,
affecting New Zealand directly through the terms of trade and
indirectly through the impact on Australia, New Zealand's
It noted New Zealand's flexible exchange rate would provide
something of a buffer.
A surge in global financial market volatility was regarded as
a high risk which could be triggered by a disorderly exit by
the United States Federal Reserve and other major central
banks from unconventional monetary policies.
That could have a medium impact on New Zealand, driving up
offshore wholesale borrowing costs, the IMF said.
A sustained decline in commodity prices was deemed a medium
risk but with a high impact on the economy, given the
nation's dependence on commodity exports, though with the
exchange rate providing a buffer.
A sharp fall in house prices was cited as the biggest
potential domestic risk, with a medium likelihood and a
medium-to-high impact on the economy.
- Additional reporting BusinessDesk