Balance of Payments Revisions - Q2 2000

Data Flash (New Zealand)
Balance of Payments Revisions - Q2 2000

Key Points

The current account deficit for the year to Q1 2000 was revised down to $7,328m from $8,545m - an improvement of $1,217m. The size of the revision was significantly greater than expected by the market.

As a proportion of GDP, the current account deficit now stands at 7.1% of GDP, down from 8.2% of GDP published previously. Data for Q2 2000 will be published on Friday.

Although the revisions stretch back five years, the most significant revisions relate to the year to Q1 1999 (see chart below). The estimated deterioration in the current account balance between Q1 1999 and Q1 2000 remained broadly unchanged at $3bn. As the table below shows, the improved current account balance largely reflects much higher estimates of the earnings of New Zealand owned foreign investments. Relatively small revisions to other components of the current account balance more or less cancel each other out.

Market Reaction: The NZD bounced 10 pts to 0.4150 on publication of the better than expected revision but drifted back off to 0.4145 later in the afternoon.

Comment While today's outcome has implications for the level of our current account forecast, the profile from here is unchanged. As noted above, the movement in the current account balance over the past year is little changed compared to that published earlier, with the key revisions occurring for the year to Q1 1999.

Data for Q2 2000 will be released on Friday, 10.45am NZT. We now expect a current account deficit of around $1,400m for the quarter. As a result, an annual deficit of around $7,500m is expected - equivalent to 7.1% of GDP, and unchanged from Q1 2000.

A more substantive improvement in the annual current account deficit is unlikely to occur before Q4 2000, at which point the impact of the frigate purchase in Q4 1999 will drop out of the annual figures. At that point we expect the deficit to fall towards 6% of GDP. A further fall to around 4% of GDP is expected to occur over the subsequent two years, a 1% of GDP improvement on our previous forecast, reflecting the favourable baseline revision.

Darren Gibbs, Senior Economist, New Zealand

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