New Zealand is too reliant on Australia continuing to grow wealthier based on demand from China, a global economist has warned.
London-based Andrew Hunt, who visited New Zealand last week, said much had been made of the "China effect" in Australia.
But in reality figures showed Australians had been digging
themselves into more debt over the past year and disposable incomes in the "lucky country" were likely to fall this year.
"Although much has been made of the 'China effect' in Australia, in reality net trade flows have subtracted from incomes and GDP of late."
Hunt said Australia had avoided a recession only because of low interest rates and its fiscal stimulus packages.
But now these were being eased back Australians could see their disposable incomes fall from a 10 per cent increase to minus 2 per cent.
"My biggest concern [for New Zealand] is the Australian growth which everyone is relying on doesn't come through."
Hunt, who owns a house in Wanaka, said his impression of New Zealand was that people were "a little too sanguine about Australia".
"From the Government down there is a view that Australia will be right and therefore we will be right."
Australia's consumer confidence was boosted by Chinese demand for its minerals but an easing in China's growth was inevitable and Australia could feel the blow to its confidence.
Hunt said a significant fall in food production in China had pushed up food costs by about 30 per cent and property prices had also risen, placing huge demands on wages. "Inflation in China may be as high as 15 per cent and 30 per cent in the cities."
Hunt said New Zealand was also likely to be hit by the Chinese inflation as imported goods got more expensive.
New Zealand's central bank faced a difficult challenge in trying to balance all the issues while easing off this country's economic stimulus, he said.
The Reserve Bank has indicated it will begin raising the official cash rate in in the second half of this year.
But Hunt said the higher rate could encourage more foreign investors, again pushing up the kiwi dollar and making it harder for exporters.
"My concern is that New Zealand might face quite a tightening of the monetary policy. A higher rise and stronger currency could lead to much softer confidence."
