By BRIAN FALLOW
The current account deficit for the year to June is probably about as bad as it gets for the present economic cycle, say economists.
"If this isn't the bottom, it is close to it," said WestpacTrust chief economist Adrian Orr.
The $7.5 billion gap between what New Zealand earns from the rest of the world and what the rest of the world earns from New Zealand, compares with a revised $7.3 billion deficit in March.
It is expected to equate with 7.1 per cent of gross domestic product, unchanged from March.
Official June GDP figures will not be released until next Friday.
"We will probably stay around 7.1 per cent for another quarter until the [second Anzac] frigate drops out of the annual figures in December," said Deutsche Bank chief economist Ulf Schoefisch.
"But further out, like most forecasters, we are looking for a strong export contribution in goods and services, and we expect the deficit to be down to 4.5 per cent by the end of 2001."
On a quarterly basis, the turning point may already have been reached.
Statistics New Zealand said that on a seasonally adjusted basis, the deficit had narrowed in the June and March quarters, with export growth the main contributor to the improvement.
The figures were in line with forecasters' expectations, which had the benefit of revised historical data on Monday, and left the markets unmoved.
The New Zealand dollar was at US40.9c late yesterday, steady on its levels before the data was released.
The largest revisions were to New Zealand's overseas investment income.
The new figures cut the deficit for the March year from $8.5 billion, or 8.3 per cent of GDP, to $7.3 billion, or 7.1 per cent.
But that still leaves New Zealand down at the relegation end of the OECD league table, with only Poland and Portugal posting worse deficits.
The revised figures still show a $3.4 billion deterioration in the current account over the year to June.
The trade component of that deteriorated $1.2 billion largely because of higher oil prices and the importing of $600 million worth of frigate.
Investment income also worsened, by $2.6 billion, as corporate profits benefited from the economic recovery.
ANZ Bank chief economist Bernard Hodgetts said it would be a mistake to think that the current account might be a non-issue in a year and that the country would cruise back to lower levels of deficit.
"The profit cycle is presumably only going to continue to recover over the next couple of years," he said.
The domestic economy's sluggishness should be short-lived as higher export incomes boosted demand, so the import side would push out again.
"Exports are doing well, but they would have to do extraordinarily well to offset all of that."
Current account deficit has to be the bottom: experts
AdvertisementAdvertise with NZME.