Deficit at its worst with more bad news ahead

By VERNON SMALL and NZPA


The current account recorded its worst quarterly result in September, and economists and official forecasters agree worse is to come.

The deficit - the measurement of how much more the country spends than it earns - of $2.65 billion was broadly in line with expectations and caused only ripples on money markets.

The September deficit took the annual deficit to $6.61 billion.

It represented 6.6 per cent of gross domestic product based on June economic data.

A Reuters poll showed economists had expected an annual deficit of $6.8 billion.

Deutsche Bank senior economist Chris Green said the deficit figure provided a marginally better starting position for the deterioration that was forecast over coming quarters and he expected the deficit to hit 7.5 per cent in December.

ANZ Bank chief economist Bernard Hodgetts agreed that although the figures might not be as dire as some expected, the situation would get worse before it got better.

The Reserve Bank believes the deficit will rise to 7.9 per cent of GDP by next March 2000. The Treasury predicts it will hit 8.3 per cent.

Finance Minister Michael Cullen said the result was disappointing but not surprising.

There was welcome evidence that, after a slow start, there was now "some traction" in the export sector.

"Seasonally adjusted exports rose $454 million over the quarter while imports, which had been outstripping exports, rose only $181 million."

There was no quick fix, he said. The country had to diversify its export base, shifting into high value-added products.

Statistics New Zealand said the main impact on the deficit was a move into surplus in the seasonally adjusted goods balance, offsetting bigger deficits in services and income transfers.

Seasonally adjusted, the deficit fell $180 million to $1.83 billion in the September quarter from $2.01 billion in the June quarter.