New Zealand seems to have learned the economic lessons of the recent housing bubble and a “structural shift” in savings habits is under way, says the International Monetary Fund.
In an uncharacteristically upbeat assessment of the New Zealand economy, the IMF says New Zealand is emerging in reasonably good shape from the recent global financial crisis.
The Reserve Bank’s “accommodative” monetary policy receives the thumbs up, as does the government’s deficit reduction plan.
The IMF is still concerned about New Zealand’s long-term external liabilities, with a current account deficit going back to the mid-1970s, and says the only way this large external liability will be eased is by a higher level of savings.
But New Zealanders appear to be doing that, the IMF’s deputy divisional chief for the Asia Pacific region, Brian Aitken, says.
“A big question we face internationally as well as in New Zealand is this increase in private sector savings, and whether it represents a structural break from the past.
"That is going to be an increasingly important question going forward.
“If you take other industrial countries … many many countries have had this housing bubble and many many households have borrowed against ever-rising equity.
“I’ve struggled over the two weeks I have been here to help get into the mind of the Kiwi household and I haven’t succeeded.
"But one thing I can say though on the house price front is that there does not appear to be what you see in other countries, which is a confidence that house prices are only going to move in one direction.
“Given that is not here, and it probably was during the run up to the global financial crisis, suggests households are probably not going to spend against expected future capital gains.
"So that tells me there should be some higher equilibrium savings than perhaps there's been in the past.”
On wider macro-economic issues, Mr Aitken said the government’s plan to return to surplus by the end of the 2015 fiscal year is a sound one, but also that some slippage, if it were for good reasons, would not damage New Zealand.
“From an international point of view, what matters to the financial markets is the policy framework and the commitment in place to bring this debt back down.
“If there was a delay for a year to two under, you know, a different set of circumstances… I don’t think the markets would view that particularly badly.”