NZ's annual current account deficit narrows to 8.5% of GDP
New Zealand’s annual current account deficit came in at 8.5% of the GDP ($33 billion) in Q1 2023 — down from a revised 9% ($34.4bn) in the 12 months to December – data which according to ANZ economists showed a “slightly less wonky” economy.
In ANZ’s latest publication, Sharon Zollner (pictured above), chief economist, explained the current account indicates whether or not an economy is living within its means, and “New Zealand’s deficit suggests it hasn’t been.”
New Zealand’s external sector imbalance, Zollner said, is a result of a perfect storm.
There’s the quarterly services balance flipping from surplus to deficit after COVID-related border closures annihilated international tourism and education exports. This was partially offset though by less Kiwis going on a holiday abroad.
There was also the significant deterioration in the annual goods balance as exports struggled in the wake of bad weather, pending regulatory change, labour constraints, and shipping disruptions.
Falling export prices relative to import prices have also weighed over the past year – as did the strong demand for imported goods, which was driven by too much fiscal and monetary stimulus for the conditions, the report said.
“All up, New Zealand remains severely out of balance, but with tourism recovering, we now appear past the worst of it,” Zollner said. “That said, it could be a long road to something more sustainable.”
The ANZ economists said the external balance suggests that inflation wasn’t the only reason for monetary tightening to guide the economy towards a more sustainable path. They reiterated that fiscal policy, too, has a role to play in ensuring the NZ-wide savings-investment balance returns to more sustainable levels.
“All else equal, New Zealand’s severe external imbalance continues to hit towards a need for a weak NZD and higher interest rates,” Zollner said.
Click here to access the full ANZ report.
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