Balance of payments looking good

By Phil Boeyen, ShareChat Business News Editor

Thursday 27th September 2001

New Zealand's balance of payments deficit is continuing to fall.

Latest figures show that for the quarter ended June the country had a current account deficit of $297 million, the lower June quarter figure since 1993.

Statistics New Zealand says there have now been falling current account deficits for the past six quarters, bringing the country's payments more into line with its receipts.

One of the major influences on the improving deficit position is the $675 million increase in the goods surplus between the March and June quarters.

"This increase is being driven by exports of goods increasing more than imports, with export values being pushed higher by earnings from dairy and meat products," says Statistics NZ.

"The second factor is the recent stability of the income deficit at around the $2 billion level. The third influence is a reducing services deficit, driven by New Zealanders spending less on overseas holidays and by increased earnings from growing tourist numbers."

Deutsche Bank senior economist, Darren Gibbs, says the deficit of $297 million compares favourably with market expectations of a deficit of $690 million.

"Strong net tourism flows have reduced the annual services deficit to the lowest level since 1996. Notwithstanding the likely negative impact of recent events on the tourism industry, the services balance may move into surplus later this year for the first time in recorded history."

Mr Gibbs says the result reaffirms the trend improvement in New Zealand's current account deficit.

"In seasonally adjusted terms, the latest quarter's result equates to annualised deficit of less than 2% of GDP. We think this quarter will prove to have been `as good as it gets' - at least until global demand conditions recover.

"Although the outcome was much better than expected, the NZ dollar displayed little reaction to the data."

HSBC senior economist, Grant Fitzner, says while still high by OECD standards, the rapid improvement in the current account balance over the last 12-18 months is welcome news. However, the good trade numbers are unlikely to continue.

"Commodity prices have sagged, and the drought and expected currency appreciation will weigh on exports - as will the global growth slowdown."

Mr Fitzner warns the the tourism industry is particularly vulnerable in the short-run, with the near collapse of Air New Zealand compounding the impact of a global decline in airline travel.

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