WELLINGTON, May 27 (Xinhua) -- A slump in house sales is posing a significant risk to New Zealand's continued economic recovery, an independent economic think tank warned Tuesday.
House sales, which lead economic growth by about six months, had slumped by almost 20 percent in the last half year despite surging to record highs in the biggest city of Auckland, according to the Quarterly Predictions report from the New Zealand Institute of Economic Research (NZIER).
"Investor demand is driving the Auckland market. In an investor- driven market, sales and prices can turn rapidly. A sudden stop in house sales could make banks more careful in lending. That would put the brakes on broader economic growth," NZIER principal economist Shamubeel Eaqub said in a statement.
The Reserve Bank of New Zealand (RBNZ) had raised interest rates by 25 basis points twice this year, bringing the Official Cash Rate to 3 percent, and further hikes were likely to cool the Auckland housing market, he said.
"A pause in hikes is possible after June, if the economy slows too quickly. The RBNZ will be wary of causing a housing bust in the provinces and sectors outside of Auckland housing, which are not overheating," he said.
While the NZIER expected the economy to grow by 3.5 percent this year, slowing growth in China was another risk.
"New Zealand exports over 20 percent of its exports to China. The indirect links through Australia and other countries exposed to China may be even more important, particularly for exporters outside of dairy, meat and forestry," said Eaqub.
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