Economic forecast raises alert over rising New Zealand debt

Rising household and farm debt is the biggest dark cloud in a generally positive outlook for the New Zealand economy, the country's main business lobby said Wednesday.

Although the outlook for the economy remained positive with a respectable growth rate of around 3 percent expected over the period to June 2018, Households appeared to have "partially forgotten the lessons of the past" and debt was increasing at a time when servicing costs were relatively low, with historically low interest rates, according to a report from the Business New Zealand group.

Household debt levels continued to rise "precipitously," while agricultural debt, largely in dairy farms, left New Zealanders exposed should asset prices burst or interest rates rise.

It referred to the country's soaring house prices, saying, "Rising house prices might provide a feel-good factor, but it would be dangerous to consider (that) this represents a real increase in wealth."

The tourism sector particularly was going from strength to strength, while the construction industry outlook was still very positive and the agricultural sector, including dairy, appeared to be weathering the storm of ongoing low prices reasonably well.

"Net migration continues to drive demand and shows no signs of abating in the short term," it said.

"While significant migration flows have many positives, there are also risks which need to be managed, ensuring there is infrastructure to meet the demands of a growing population and that land and housing are available for purchase, for example."

However, it was "pleasing to see" the government seeking to address key regulatory issues that were acting as a handbrake on growth and development. Endit