New Zealand economy heading for highest growth in seven years

The New Zealand economy will grow next year at its strongest rate since 2007, or before the Global Financial Crisis, led by a surge in household spending, a leading economic think-tank forecast Wednesday.

It had taken seven years to recover from one of the deepest and longest recessions on record, according to the Quarterly Predications issued by the New Zealand Institute of Economic Research (NZIER).

Household spending was leading the resurgence, boosted by the recovery in the earthquake-battered Canterbury region and a rebound from last summer's drought.

However, NZIER principal economist Shamubeel Eaqub warned in a statement that the global economy was still fragile and a soaring housing market in the country's biggest city, Auckland, could derail economic and financial stability.

Auckland house prices had surged to unprecedented levels relative to history and international experience, and with more borrowing, the risk from a potential fall in house prices was high.

If stricter loan-to-value limits introduced in October failed to cool borrowing and house prices sufficiently, the Reserve Bank of New Zealand (RBNZ) would raise interest rates quickly in 2014, said Eaqub.

The RBNZ has held the official cash rate at an historic low of 2.5 percent since March 2011, but has warned it could begin to rise next year.

Eaqub said that with a positive economic backdrop next year, business leaders could shift their attention from hunkering down to strategy and growth.

New Zealand's GDP growth in the year to the end of June was 2.7 percent.