Deutsche Bank – Current Account Preview

Deutsche Bank Economic Note (New Zealand) NZ:

Current Account Preview - June Quarter 1999

Key Points

Release date:::::::::::::::::::::23 September, 10.45am (NZT)

DB forecast:::::::::::::::::::::Current account (ex migrant transfers) :::::::::::::::::::::::::::::::: ($NZ): -$2.1bn qtr.; -$6.7bn ann.

Forecast risk::::::::::::::::: Balanced risk assessment

Market expectations (median): Quarterly current account balance ($NZ): ::::::::::::::::::::::::-$2.0bn qtr.; Range: -$1.5bn$2.2bn
::::::::::::::::::::::::::::::::::Annual current account balance ($NZ): :::::::::::::::::::::::::-$6.6bn ann.; Range: -$6.1bn/-$6.7bn
Previous release (Mar qtr): Quarterly current account balance ::::::::::::::::::::::::::::::($NZ): -$0.9bn qtr. :::::::::::::::::::::::::::::::: Annual current account balance ($NZ): :::::::::::::::::::::::::::::-$6.5bn ann.

:::: Current Account (yr ended):::: Jun98::::Sep98::::Dec98::::Mar99 Jun99

Merchandise Exports ::::::::21,706 22,167::::22,566 22,616 22,770

Merchandise Imports ::::::::20,165 20,533::::21,009 21,363 21,881

Trade Balance ::::::::::::::::1,541::::1,634:::: 1,557 1,253:::: 889

Services Exports ::::::::6,666::::6,835:::: 7,035 7,540::::7,682

Services Imports ::::::::8,083::::8,410:::: 8,566 8,791::::8,867

Services Balance :::: -1,418 -1,575:::: -1,543 -1,252 -1,186

Total Investment Credits 404:::: 19::::::::-27::::-193:::: -50

Total Investment Debits:::::::: 7,495::::7,159:::: 6,728 6,742 7,000

Investment Income Balance:::: -7,091 -7,140:::: -6,755 -6,935 -7,050

Transfer Balance:::::::::::::::: 704:::: 642::::::::768:::: 557:::: 654

Current Account Balance::::::::-6,264 -6,439:::: -5,973 -6,377 -6,693

Balance (ex migrant transfers) -6,424 -6,574:::: -6,120 -6,482 -6,749 % of nominal GDP:::::::::::: -6.5:::: -6.5:::: -6.1::::-6.5:::: -6.7

Comment

We expect the newly formatted balance of payments data - under the new IMF methodology these data exclude the effect of migrant transfers - to show the annual deficit as a percentage of GDP widening from 6.5% to 6.7% of GDP over the June quarter. While we project some improvement in the annual services balances, this is expected to be more than offset by a deterioration in the annual investment balance and merchandise trade position.

Looking ahead, despite the outlook for exports and the terms of trade remaining positive, the on-going strength of import growth is likely to constrain the medium-term improvement in the trade balance. In addition, most of this improvement is expected to be offset by a worsening investment income deficit, reflecting a recovery in company earnings, rising world interest rates, as well as the funding costs related to continued high deficits.

With the deficit expected to widen to around 7.5% of GDP - largely due to the importation of a naval frigate - we expect the subsequent reduction in the deficit to stall above 6% of GDP. As such, we expect the external imbalance will remain NZ's key structural problem.

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ENDS

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