New Zealand households are now borrowing more relative to their disposable incomes than they did before the global financial crisis when a red-hot housing market was encouraging consumers to tack a little onto the mortgage to pay for big ticket purchases.
Kiwi household debt is now a record 167 per cent as a proportion of disposable income, and New Zealand Institute of Economic Research senior economist Christina Leung says that's a key risk to the economy.
"There are two key risks from these growing debt levels in terms of serviceability: interest rates are likely to be on the way up, and the potential for a downturn in the labour market meaning reduced income for households. With consumers feeling more confident about discretionary spending we're seeing a pick-up in consumer credit growth," Leung said.
The Reserve Bank is watching local consumer spending closely after being surprised by an acceleration in consumption through the second half of last year.
RBNZ governor, Graeme Wheeler, reiterated his fears about the local housing market, which has faced an imbalance between supply and demand, pushing up prices at a time when tepid inflation called for record low interest rates.