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Housing Still a Major Economic Threat to New Zealand

Housing Still a Major Economic Threat to New ZealandHousing Still a Major Economic Threat to New Zealand

The economy has received a good report card from the International Monetary Fund, although it is still at risk from a hot housing market and global downturn. The IMF’s final report on New Zealand’s performance has confirmed its initial upbeat view

given in March. It said strong economic growth was being driven by immigration, construction, a recovery in commodity prices and low interest rates. But it warned record immigration might cause the economy to overheat, and that might reignite the housing market, RadioNZ reported. “Downside risks stemming from a booming housing market, as well as the potential for tighter external financial conditions, lower demand from trading partners, or disruptions to international trade have increased vulnerabilities,” the IMF said in a statement. The IMF said the reserve bank should be allowed to use debt-to-income limits to cool the housing market if needed, along with tax changes to deter property speculation. “Such measures could help redirect savings to other, potentially more productive, investments and, thereby, support deeper capital markets.”

The IMF report projects New Zealand’s population reaching 5 million in 2021 from 4.6 million in 2016. In a breakout chapter on net migration, the international agency noted the recent net inflow since 2013 was driven in part by the weakness of the Australian labor market relative to New Zealand’s strong job opportunities when the Canterbury earthquakes stoked economic activity, at the same time as the country attracted strong international student numbers.

Strong migration has become a political football heading into the general election in September, with opposition parties promising to cut the number of new migrants, claiming the expanding population hasn’t contributed to faster economic growth, pointing to slow per capita gains in gross domestic product, while putting greater stress on infrastructure. In a separate report, the IMF said New Zealand’s banking system was also in good health and capable of withstanding any severe global financial crisis. However, it recommended the system would be strengthened by bringing in bank deposit insurance and beefed up supervision of financial markets and companies.

Minister of Finance Steven Joyce said the reports backed the government’s management, and recognized the benefits of immigration. “The report is positive about the country’s economic outlook and endorses New Zealand’s macro-economic and fiscal policy settings.” “The IMF notes that the New Zealand economy is more resilient than in the past, specifically referencing our lower current account deficits than in previous periods of expansion,” he said. “It also notes that New Zealand is benefiting economically from its current growth in population.” 

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