A Shocker - But Not Unexpected And Will Turn Corner Soon

"The latest balance of payments deficit is awful but should be about as bad as it gets," Finance Minister Michael Cullen said today.

Dr Cullen was commenting on the December quarterly BoP showing a deficit for the year of $8.2 billion - or 8 percent of GDP.

"The figure is in line with Treasury, Reserve Bank and private sector forecasts. But the consensus is that the position will begin to turn around after the March quarter," Dr Cullen said.

"This expectation is supported by the overseas merchandise trade data for February. While the import performance is still highly volatile, the evidence is that export growth is accelerating steadily.

"Provisional estimates are that exports are 22.5 percent up on February last year. The corresponding increases for December and January were 15.1 percent and 10.6 percent respectively.

"The improvement reflects both rising commodity prices and higher export volumes," Dr Cullen said.

The RBNZ was expecting the BoP deficit to slip to 5.8 percent next year and to 4.8 percent by 2003. The Treasury's forecast profile was similar although a little higher. It had the deficit sliding to 6.6 percent next year and to 5.6 percent in 2003.

"But although the trend is downward, there is no room for complacency. Deficits of the levels projected by both agencies for 2003 are still outside my comfort zone as Finance Minister.

"This Government plans to address the structural problems behind the BoP deficit by introducing policies to raise savings and to expand and add value to the export base," Dr Cullen said.

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