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New Zealand Economy to Grow 3.5%; IMF Warns of Housing and China Slowdown

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By Reissa Su | June 11, 2014 4:35 PM EST

The International Monetary Fund (IMF) is expecting a 3.5 per cent growth for the New Zealand's economy for the year before going back to a 2.5 per cent average by 2016. According to the IMF, the country's economic expansion is being driven by favourable financial conditions, resurging construction activity, high commodity prices and a sufficient increase in immigration.

REUTERS/NIGEL MARPLE
New Zealand's Prime Minister John Key smiles after the general election in Auckland November 26, 2011. REUTERS/NIGEL MARPLE

In its latest report, the IMF said it agrees with the Reserve Bank of New Zealand to tighten monetary policy. It is also in favour of the government's plan to go back to a fiscal surplus.

Although the IMF views banks in New Zealand as sound and well-capitalised, it is concerned about the country's dependence on borrowing. The IMF report said it may be "a continuing source of risk" for New Zealand.

The biggest potential risks to New Zealand's economy are financial market volatility, drop in house prices and commodities, including the sharp decline in China's growth, according to the IMF.

New Zealand's housing market inflation was declared by the Organisation for Economic Co-operation and Development as the second highest in the developed world in its latest published report. On a price-to-rent ratio, the OECD found the country to be the "most overpriced." 

Consumer goods from high-profile global brands like Apple's iPhones and Macbooks and Levi's jeans were found to be expensive in New Zealand. Despite the high prices in consumer goods, the country remains one of the cheapest when it comes to a night in hotel in Wellington or Auckland than most of the cities in a global survey. Deutche Bank's report on Mapping the World's Prices said New Zealand was the priciest country in the world to buy Coca-Cola and Adidas shoes.

According to the IMF report, Asia is expected to experience strong growth in 2014 and 2015 to be among the company of global growth leaders. The Asian region is expected to benefit from improved growth opportunities among the world's advanced economies.

However, global economies continue to face new and old risks, including the ongoing geopolitical uncertainty over Ukraine, the tapering or the moving away from the unconventional monetary U.S. policy and the impact of low inflation in the EU. 

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(Photo: REUTERS/NIGEL MARPLE / )
New Zealand's Prime Minister John Key smiles after the general election in Auckland November 26, 2011. REUTERS/NIGEL MARPLE
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