Credit rating agency Standard & Poor's says the Government will need to keep tight control of its finances if household debt takes off again.
On Monday, Treasury pointed to signs of an economic recovery in New Zealand, and tipped the unemployment rate would not reach the level it had earlier predicted.
It predicted house prices would rise, not fall, over the next year, but warned the economic recovery could be thrown into reverse if New Zealanders pile up debt again to buy houses.
Standard & Poor's, which put the country's credit rating on negative watch earlier this year, says the rating has been stable since the Budget, delivered in May.
However its New Zealand analyst Kyran Curry says this could change if the Government doesn't control its borrowings and household debt rises again.
The National Bank says a second recession is on the cards if the country's credit rating is downgraded and interest rates rise.
New forecast
In this year's Budget, Treasury was forecasting the unemployment rate to peak at 8% in 2010. It is now expecting unemployment to peak at 7.5%.
In its monthly summary of all economic data released during August, Treasury said the international economy is in better shape than when it did forecasts for the Budget.
Though it forecast house prices would fall by 10% over the next year, it now expects prices will rise.
As at the end of June, the unemployment rate was 6%. The number of people officially unemployed was at 10-year high of 138,000.
