The report says a downturn in China could have potentially "substantial" negative effects on the wider economy.

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.

As Finance Minister Michael Cullen prepares to deliver his ninth budget tomorrow an International Monetary Fund report (IMF) has warned of the need to keep inflationary pressures in check and restrain government spending.

The IMF said those measures were needed to help reduce the harmful effects of the international credit crunch.

The International Monetary Fund (IMF) has raised concerns about disruptions to New Zealand's access to offshore funding, but says its sound banking system and focus on inflation would help cushion the economy.

A steady stream of offshore funds, largely bank borrowing to help fund mortgage lending, has pushed New Zealand's net foreign liabilities to almost 90 percent of gross domestic product (GDP), among the highest of advanced economies.