NZ could become an economic basket case – Reserve Bank claim

Rising debt, overheated housing market threaten New Zealand’s economic stability
[e]John Macdonald

WELLINGTON, Sept. 27 (Xinhua) — New Zealand’s overvalued housing market and high household debt levels risk derailing the country’s fragile economic recovery, two leading economic institutions warned Friday.
Reserve Bank of New Zealand (RBNZ) governor Graeme Wheeler said in the RBNZ’s latest annual report that the two most significant challenges facing the bank were the overvalued New Zealand dollar and the overvalued housing market.
“The former is creating difficult headwinds for New Zealand’s export and import substitution industries, although it has benefited purchasers of imported goods and services, and contributed significantly to the current low levels of inflation,” Wheeler said in the report.
“New Zealand’s house prices, in comparison to household disposable income and rents, are high by international standards. Household indebtedness, relative to GDP, is currently rising from already high levels. The rapid increase in house prices in some regions, especially Auckland and Christchurch are of concern for several reasons, not least the increasing risks they present to financial stability and the wider economy.”
The RBNZ was implementing measures to curb the amount of high- loan-to-value mortgage lending from Oct. 1, and these were ” designed to help slow the rate of housing-related credit growth and house price inflation, thereby reducing the risk of a substantial downward correction in house prices that would damage the financial sector and the broader economy.”
Also on Friday the Business New Zealand lobby group released in Planning Forecast, which also warned that high household debt was casting a shadow over a mostly positive economic outlook.
“When interest rates rise again, the cost of servicing high debt levels will adversely affect households. It will also likely impact on the New Zealand dollar to the detriment of exporters,” Business New Zealand economist John Pask said in a statement.  Enditem

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