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WELLINGTON, June 15 (Reuters) - The Organisation for Economic Co-operation and Development (OECD) warned New Zealand on Thursday that low labour productivity poses long-term challenges for the country despite its solid growth prospects.
The Paris-based OECD, a rich-country think tank, also backed the Reserve Bank New of Zealand's proposal to add debt-to-income limits on home loans to its policy toolkit amid concerns over high household borrowing and rising house prices.
OECD Chief Economist Catherine Mann said New Zealand's robust economic growth was "enviable", but stressed the need to tackle labour productivity that lagged its OECD peers.
"Improving productivity growth is a major long-term challenge for improving inclusiveness and living standards," Mann said in a report.
The OECD is projecting slightly weaker growth than the New Zealand government, allowing for differences in the forecast periods.
The OECD saw growth at 3.1 percent for both 2017 and 2018 calendar years, while the New Zealand government has forecast growth of 3.7 percent for 2017/18 and 3.5 percent for 2018/19.
New Zealand's statistics agency said on Thursday the economy grew by 0.5 percent in the three months to March. The number was lower than the 0.7 percent growth forecast in a Reuters poll of economists and well under the central bank's forecast for 0.9 percent growth.
The OECD said the New Zealand government should reduce barriers to foreign investment, lower the corporate tax rate and introduce research and development tax credits to tackle low productivity.
Mann told reporters at a briefing in Wellington that debt-to-income limits on home loans would need to be deployed carefully, but could help ease pressures in New Zealand's strong housing market that pose systemic risks.
"House price-to-income ratios being at this highly elevated level warrant some concern," she said.
The Reserve Bank of New Zealand (RBNZ) said earlier this month said there would be "significant net benefits" in adopting DTI limits. It is seeking feedback on DTI limits by Aug. 18.
New Zealand's housing market has soared more than 50 percent in value over the last decade, raising concerns that high mortgage debt could pose a systemic risk in the event of a sharp downturn in property prices.
The RBNZ already requires investors to make a 40 percent downpayment on investment properties, after ramping up loan-to-value restrictions (LVR) in 2016.
The measures have helped slow the rate of house price growth in recent months, but the central bank has said any resurgence in prices could be a worry.
New Zealand's national household debt-to-income ratio stands at 168 percent, above most other OECD member countries, the IMF said in a report last month.
Reporting by Ana Nicolaci da Costa and Charlotte Greenfield; Writing by Jane Wardell; Editing by Eric Meijer