'Both have enjoyed long running expansions, both have unemployment down to levels not seen in decades, both find the global economy congenial, both are operating at the limits of their capacity, and neither can reasonably expect growth to markedly slow.'

But, markedly or not, growth is now forecast to slow in the case of New Zealand and business expects more rate rises.

The consensus forecast on economic growth, polled last month by the New Zealand Institute for Economic Research [NZIER], show that forecasters expect annual average real GDP growth for the year to the end of March 2008 to be 2.4 per cent, down from expectations of 2.5 per cent in the previous survey. Forecast growth for the year to the end of March 2009 is now revised down to 2 per cent.

IMF data shows that New Zealand has been a laggard in the Asia-Pacific growth story, with real GDP growth of 2.7 per cent (2005) and 1.6 per cent (2006), comparing poorly with South Korea (4.2 per cent and 5 per cent respectively), Taiwan (4.1 per cent and 4.7 per cent), Hong Kong (7.5 per cent and 6.9 per cent) and Singapore (6.6 per cent and 7.9 per cent).

In its World Economic Outlook, released last month, the IMF cautions that for both New Zealand and neighbouring Australia 'the main short-term policy challenge ... continues to be to keep firm control on inflation in the face of strong domestic demand and tight labour markets'.

The housing market is now bearing the brunt of those policy measures. 'Residential property is showing signs that higher interest rates are reining in the strength evident in the market in late 2006 and earlier this year,' notes Chris Tennent-Brown, New Zealand economist for ASB.

'Annual price growth is starting to soften and housing turnover has slowed noticeably since March. Listed property share prices have also softened slightly over the past six months.'

Data released last month by the Real Estate Institute of New Zealand show that while property prices continued to 'defy the critics' in September - with the national median price edging to a new record of NZ$351,500 (HK$2.07 million) - transaction volumes continued to slide.

'Sales were down from 6,394 in August, to 5,894 in September - the lowest since the 2001 sales of 5,550 and almost half the September 2003 sales of 10,686,' it notes.

Slower housing sales are likely to spread to slower consumption spending, and NZIER Consensus Forecasts, polled in its September quarter survey, show that analysts expect real private consumption to slow from a forecast 3.1 per cent for the year ending March 2008, to just 1.5 per cent in 2009.

Private sector wages are expected to grow relatively weaker than in 2006/07 in the March 2008 and 2009 years, it notes, with hourly wages expected to grow 4 per cent in 2007/08 and 2008/2009, compared with 5.3 per cent in 2006/2007.

But those high interest rates will continue to underpin a strong Kiwi dollar, however, and on a trade-weighted basis the consensus outlook for currency was an average index level of 69.2 in 2007/08.

The Reserve Bank of New Zealand left the Official Cash Rate unchanged at 8.25 per cent after its October review but warns that inflationary pressure remains a risk. 'The labour market remains tight, domestic income growth continues to expand on the back of strong commodity prices, and core inflationary pressures persist. On the other hand, there are signs the housing market is moderating,' Reserve Bank Governor Alan Bollard said in a statement, released on October26.

'Despite ongoing surpluses in the government's operating balance, fiscal policy is contributing to inflationary pressure. Any further easing in fiscal policy beyond that already announced will add further upside risks to medium-term inflation.'

New Zealand stocks ended a 'rocky ride' in the September quarter on a positive note, says the country's largest fund manager.

In a research note to clients released on October23, AMP Capital Investors' Leo Krippner, head of investment strategy, said returns for 2007 remained solid and the outlook for a diversified share portfolio was encouraging.

'We continue to expect good returns from the diversified funds going forward. Global growth should hold up, with central bank assistance if required, and that environment should be good for shares,' Dr Krippner said.

The best performer for the quarter, he notes, is New Zealand commercial property returning 6.8 per cent, followed by unhedged global shares (6.5 per cent) which benefited from the fall in the New Zealand dollar. For the quarter, New Zealand equities returned 1.9 per cent and year-to-date returns were 7.7 per cent.

New record

Approximate national median price of a home in NZ$, in September: 351,500