BNZ sees 2005 as danger year for NZ's growing economy

The Bank of New Zealand (BNZ) today warned businesses and investors to carefully watch gathering economic storm clouds in the year ahead.

"Short term all the news is good, (but) we are starting to develop the unsettling feeling that things could turn to custard if we are not now very careful," BNZ economist Stephen Toplis said.

The year ahead would see the economy maintain its momentum, but 2005 was "the danger year as far as we are concerned."

The soaring New Zealand dollar, the likelihood of official cash rate increases, a fall-off in net migration and the possibility of a property pull-back were factors.

"Thus 2005 is being set up as the critical year for the New Zealand economy," Mr Toplis said in a statement.

"We are very concerned that the forces of evil are mounting."

Despite the past year being one of many lows -- terrorism, severe acute respiratory syndrome, and the electricity shortage -- New Zealand had experienced "fairy tale" growth.

This year its expansion was among the strongest in the developed world and third quarter Gross Domestic Product figures out next week were likely to show 1.1 per cent growth.

"Barring revisions... that will leave activity up 2.8 per cent up on year earlier levels and see annual average growth of 3.5 per cent.

"(It is) hardly the look of an economy under any pressure.

"...there is no doubt that much of the nation's current activity is being driven, directly and indirectly, by heat in the property sector."

But the above factors had to placed in context with the global environment, Mr Toplis said.

"Our New Zealand forecasts are heavily reliant on the world remaining robust but serious concerns remain over the structural imbalances evident in the global economy.

"If need be the Reserve Bank has the option to let go of the shackles and provide heaps of liquidity to the economy.

"Its potential firing power -- 500 basis points of cash rate -- will be the envy of the Bank of Japan, European Central Bank, and United States Federal Reserve.

"We believe we have the ability to avoid any major demise but businesses and investors alike would be well advised to be cautious about their prospects for the calendar 2005 (year)."

- NZPA