KEY POINTS:
Statistics due out this week are expected to show the economy picked up slightly over the December quarter, while the balance of payments remained in the red.
Economists are expecting Thursday's balance of payments release to show a current account deficit of around $4 billion for the quarter, or around 9.1 per cent of gross domestic product (GDP).
While still very high by international standards, the shortfall as a percentage of GDP is showing signs of levelling off after hitting 9.7 per cent in the June 2006 year, economists say.
Friday's GDP report is expected to show economic activity picked up by 0.9 per cent, against a 0.3 per cent rise in the September quarter, making for a modest annual average growth rate of 1.6 per cent for 2006.
ASB Bank economist Chris Tennent-Brown says the key drivers for economic growth over the quarter will be the ongoing strength in consumer demand and increased government spending. He expects the GDP figures to reinforce themes the Reserve Bank has been trying to address - namely an overly buoyant housing market.
"The GDP data will be a reinforcement of everything that we have already seen, which will keep the Reserve Bank on their toes," Tennent-Brown says.
ASB treasury economist Daniel Wills says that while export growth has been strong over the past quarter or so, it has been overshadowed by a sharp increase in import growth.
But behind the strong export story have been strong commodity prices, particularly for dairy exports, while the rest of the export sector is likely to be feeling the pinch from the high New Zealand dollar, he says.
Wills says there is an expectation that the current account shortfall will shrink over time. "But those expectations are just getting pushed further and further out," Wills says.
Deutsche Bank NZ chief economist Darren Gibbs says he expects to see an improvement in the trade balance but a worsening in the investment income balance, reflecting growing debt. Economists expect the current account deficit to remain high for some time. "The prognosis for the next couple of years is only a very modest improvement. The only way I can see that changing is if the Reserve Bank gets on top of the economy and we get a slowdown in demand, which would probably trigger a lower currency," Gibbs says.
