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Economist warns Kiwis to stop spending as household debt rises

Author
Alicia Burrow,
Publish Date
Tue, 4 Oct 2016, 6:19PM
Photo / Getty Images

Economist warns Kiwis to stop spending as household debt rises

Author
Alicia Burrow,
Publish Date
Tue, 4 Oct 2016, 6:19PM

New Zealand's low interest rates may be a party for spenders now, but an economist is warning it's time to tighten the purse strings.

LISTEN ABOVE: Federation of Family Budgeting Services chief executive Raewyn Fox spoke to Chris Lynch

The Treasury’s monthly economic indicators show New Zealand Household Debt, relative to disposable income has increased to 165 per cent for June.

That’s slightly more debt than what we were in prior to the Global Financial Crisis.

But ANZ chief economist Cameron Bagrie says servicing that debt is much cheaper because interest rates are low, so it’s also much easier for us to climb our way back out.

He is however concerned that we won't be able to sustain our growth if we keep borrowing form the future.

"When you binge on growth or binge on debt you tend to have an almighty hangover."

Mr Bagrie said if debt keeps on rising and interest rates suddenly turn around and start to go up it could put New Zealanders in a very vulnerable position.

"And the more growth you pull forward from the future, the less growth you're going to have in the future."

He said 12 to 18 months of borrowing and spend style growth with strong credit accumulation is okay, but it could cause a growth gap in the future if it continues for two to three years.

Meanwhile the Federation of Family Budgeting Services chief executive Raewyn Fox says people are borrowing just to stay afloat.

She told Chris Lynch she's seeing more and more people taking out loans from non-bank and third-tier lenders - and it's no party.

"People are using their whole income to pay rent and buy their food, pay their basic bills and if any little thing goes wrong like the car breaks down or the children need a new pair of shoes they have no disposable income to pay for it."

She said the fact more people are in debt now than the last recession is very concerning.

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