30 Jan 2014

Growth forecast warning sounded

6:56 am on 30 January 2014

An economist is warning people to be aware of the underlying drivers behind some of the latest economic growth forecasts.

Moody's rates New Zealand as AAA, with a stable outlook, a notch above the other two agencies, Standard & Poor's and Fitch.

It said the economy and the Government's finances were improving following a long but mild recession and the Canterbury earthquakes.

The economy was accelerating, partly because of the rebuild following those earthquakes, and it expected the economy would grow by 3 percent in 2014 - an expectation underpinned by the Government's forecast of a small surplus next year.

But it pointed to downside risks, including New Zealand's higher-than-average dependence on sectors related to agriculture and forestry, its exposure to any potential downturn in China and Australia and a continued reliance on foreign savings.

While Moody's confirmed the improving economic picture, Mr Green said there were risks.

"Obviously a weakening China impacts through into a likely weakening in Australia as well, so you sort of get almost a double whammy," Mr Green said.

"The other thing was a mention of that higher degree of dependence on the agricultural and forestry sectors, and I think that's obviously a risk given that in some ways the positive New Zealand economic backdrop at the moment is very much a reflection of factors that aren't really economically in control of New Zealand (such as) very strong commodity prices for dairy and also good growing conditions.

"So it's reflecting where the growth is coming from and suggesting that there's some potential risk of a lack of diversification in that."

Meanwhile, Treasury chief economist Girol Karacoaglu warned Parliament's Finance and Expenditure Select Committee on Wednesday that the rockstar status being given to the New Zealand economy reflected the short-term outlook only.

Treasury's view was that spending needed to stay restrained and the Crown's investments into the Christchurch rebuild needed to be tightly managed, Mr Karacoaglu said.