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Current Account and IIP - Q3 2001

Data Flash (New Zealand)
Current Account and IIP - Q3 2001

Current Account (Q3)

A current account deficit of $1.7 billion was recorded for the September quarter, in line with market expectations.

The annual deficit reduced from 3.9% of GDP ($4.5 billion) to 3.4% ($3.9 billion).

Over the past year the current account deficit improved by $3.3 billion, driven by a $3.5 billion increase in the trade surplus and a $0.3 billion reduction in the services deficit. The investment income deficit provided a partial offset, widening by $0.5 billion. The latter is consistent with the funding cost of the previous year`s current account deficit.

In seasonally adjusted terms, the current account deficit increased somewhat. Annualising the quarterly seasonally adjusted result, the deficit rose from 2.0% to 2.3% of GDP in Q3.

There was no market reaction to this release.

International Investment Position (30 September 2001)

New Zealand's net international liabilities (external balance sheet including debt and equity) rose from $86.8 billion to $87.9 billion. That was less than the estimated increase in nominal GDP, causing the ratio of net liabilities to GDP to fall from 75.6% to 75.0%.

The rise in net international liabilities of $300 million over the past year compares to a current account deficit of $3,900 million over the same period, suggesting valuation changes of $3,600 million in New Zealand's favour.

Comment

Today's data confirmed the positive trend evident in New Zealand's external accounts over the past year. International concerns about persistently high current account deficits and an unsustainable trend for external liabilities have largely disappeared, removing one of the key negative fundamentals from New Zealand's macroeconomic scorecard.

For the calendar year 2001 we expect the ratio of current account deficit to GDP to fall below 3%. However, that will be a function of a lower Q4/01 deficit replacing a high Q4/00 in the calculation of the annual figure. The underlying trend is likely to confirm that the deficit has already bottomed. That will be shown by a further rise in the seasonally adjusted quarterly deficit.

Even though we expect the combination of worsening terms of trade (due to weaker commodity prices) and lower export volumes (including the tourism sector) to produce a renewed rise in the current account deficit during 2002, we expect that trend to be modest, leaving the current account GDP ratio below 4% over coming years. Such a development would confirm the structural improvement of New Zealand's external accounts associated with the significant downward adjustment of the real exchange rate.

Ulf Schoefisch, Chief Economist, New Zealand


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