Data Flash (New Zealand) - Preview

NZ Current Account Preview - September Quarter 1999

Key Points

Release date:::::::::::::::: 21 December, 10.45am (NZT)

DB forecast:::::::::::::::::::Current account (ex migr. transfers)
:::::::::::::::::::::::::::::::::($NZ): -$3.0bn qtr.; -$6.9bn ann.

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

Market expectations (avg):::::Quarterly current account ($NZ):
:::::::::::::::::::::::::::::::::-$2.7bn qtr.; Range: -3.2$bn/-2.3$bn
::::::::::::::::::::::::::::::Annual current account ($NZ):
:::::::::::::::::::::::::::::::::-$6.8bn ann.; Range: -$7.2bn/-$6.3bn

Previous release (Jun qtr)::::Quarterly current account ($NZ): -$2.0bn qtr.
::::::::::::::::::::::::::::::Annual current account ($NZ): -$6.3bn ann.

Current Account (year ended)::::::::::::::::::Dec98::::Mar99::::Jun99::::Sep99(f)

Merchandise Exports:::::::::: 22,909:::22,994:::23,229:::23,396

Merchandise Imports:::::::::: 21,181:::21,531:::22,174:::23,044

Trade Balance::::::::::::::::::1,730::::1,485::::1,056::::: 352

Services Exports:::::::::::::::6,954::::7,437::::7,614::::7,661

Services Imports:::::::::::::::8,475::::8,657::::8,571::::8,477

Services Balance::::::::::::::-1,521:::-1,220:::::-957:::::-816

Total Investment Credits:::::::::812::::: 314::::: -16::::: 72

Total Investment Debits::::::::6,621::::6,707::::6,942::::7,143

Investment Income Balance:::::-5,809:::-6,393:::-6,958:::-7,071

Transfer Balance::::::::::::::: 475::::: 347::::: 510::::: 647

Current Account Balance::::: -5,125:::-5,801:::-6,349:::-6,888

Balance (ex. migr. transfers) -4,978:::-5,696:::-6,290:::-6,880

:::% of nominal GDP:::::::::: -5.0:::::-5.8:::::-6.3:::::-6.7

Source: DB Global Markets Research, Statistics NZ

Comment

In line with average market expectations, we project the annual current account deficit to widen from 6.3% to 6.7% of GDP over the September quarter.:::While we forecast some improvement in the annual services balance (driven by continuing strong tourism growth), this is expected to be more than offset by a widening in the investment income deficit and a sharp deterioration in the merchandise trade balance on the back of recent strong import growth.

Looking further ahead, the current account deficit is forecast to deteriorate sharply to 7.7% of GDP over the December quarter, as the importation of a naval frigate (accounting for around 0.5 percentage points of the deficit) impacts on the current account balance. Thereafter, we expect only a gradual improvement in the current account, with the deficit remaining above 6% over the next two years.

While the trade balance is likely to improve on the back of stronger exports and a favourable trend in the terms of trade, the widening investment income deficit will provide a partial offset. The investment debts are expected to rise faster than nominal GDP, due to rising world interest rates and a recovery in the profitability of foreign-owned corporates in New Zealand.

The structural current account problem is expected to lead to a Standard & Poors credit rating downgrade in early 2000 and limit the medium-to-long-term performance of the NZD.

ENDS

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