Outgoing Reserve Bank of New Zealand governor Alan Bollard offered a series of sobering observations on the New Zealand economy and the implications for banks in one of his last speeches after 10 years in the job.Households and agribusiness will have to adapt to lower levels of leverage, trends that may drag down property prices and add to the constraints on credit growth for New Zealand's (largely foreign owned) banks, he said.Among Bollard's reasons for these projections are New Zealand's modest rates of economic growth and a rise in incomes that is "still well below previous expectations".Lower rates of growth in incomes - at the household and national income level - will feed into deeper economic forces."It seems likely that the experience of recent years will change the nature of conversations in New Zealand families," Bollard said. "For decades, it has seemed attractive for households to borrow - first as a hedge against a couple of decades of high inflation, and, more recently, as real house prices rose more dramatically than at any time in our history. "High inflation is a thing of the past. And a repeat of the house price boom not only seems unlikely but would be very damaging and risky if it were to occur."Businesses and households face real spending and savings decisions each day, and New Zealand's economic performance in the next few years will depend, in part, on the way in which firms and households respond to the changing circumstances, and risks, in a climate of considerable uncertainty."The RBNZ expects tangible shifts in common measures of household and business indebtedness."Looking ahead, we suspect that sustainable long-term ratios of household and farm debt, in particular, are likely to be below current levels," Bollard said.These forces will inhibit property prices.Bollard said: "Our sense is that real house prices are still somewhat overvalued; they are certainly well above historical levels and look expensive by international standards relative to incomes or rents."Reflecting on the last years of the long boom (roughly Bollard's first five-year term) and then the financial crisis (the period of Bollard's second five-year term), the RBNZ governor noted that during the last three years of the boom private sector credit in New Zealand increased by around 14 per cent each year when nominal GDP was rising at six per cent. "We probably put less weight on this gap at the time than we should have, or than we would do today," Bollard said. The end of the credit boom, Bollard said, "came rapidly; annual credit growth fell from 15 per cent to two per cent in only 18 months.""Experience suggests that the aftermath of a debt and asset price boom need not materially hold back a country's economic performance for long. But this time it looks as if the accumulated debt is, in fact, acting as quite a sustained drag, in New Zealand and other advanced economies."Bollard, who was speaking at a meeting of the Manufacturers and Exporters Association, in Auckland, devoted most of his