NZ dollar should be 15% lower to cut current account: IMF   8 Jun 2012

Paul McBeth

The New Zealand dollar needs to be 15 percent lower to bring the nation's current account deficit to a more sustainable level, according to the International Monetary Fund.

New Zealand's external vulnerability is cited as the key medium-term issue for the country, which will need a better national savings rate and reduced reliance by banks on foreign funding, according to the IMF's concluding statement on the economy. That reliance on global funding assumes the Canterbury rebuild gathers pace and global interest rates get back to more normal levels.

The global lending agency sees New Zealand's current account deficit rising to 7.1 percent of gross domestic product and net external liabilities to 84.8 percent of GDP by 2016. That's worse than the Treasury's latest forecasts for a 6.9 percent current account deficit and 80.8 percent net foreign liability deficit in the 2016 March year.

"Staff analysis suggests that the New Zealand dollar is currently stronger than is consistent with a level of the current account deficit that is more sustainable over the long term," the report said. To stabilise external liabilities at the 2009 level, "the New Zealand dollar would need to be about 15 percent weaker than its current level."

New Zealand's trade-weighted index fell to 69.83 this morning from 70.08 yesterday. The Budget economic forecasts project the TWI falling to 63.0 in 2016, the end of its forecast period.

In April, the IMF preliminary statement on New Zealand backed the government's plan to get its own books back in the black by 2014/15, which will unwind fiscal stimulus as the Canterbury rebuild gets under way and offer headroom in the event of another global meltdown.

The IMF held to the same line in its concluding statement, saying lower net government debt will help contain the current account deficit over the medium term and reduce external vulnerability by lifting the national saving rate.


However, it questioned whether New Zealand's unique position, in that most of its external debt is private rather than public, raises the question "whether this would limit the ability of budget deficit reduction in the case of New Zealand to bring about a reduction in foreign liabilities more broadly."

The IMF also backed the government-appointed Savings Working Group's recommendations to shift more of the tax base to consumption over the medium-term and to index tax on interest income to inflation.

It said New Zealand's economy continues to grow at a modest pace, with GDP forecast to expand 2.3 percent in 2012, rising to 3.2 percent in 2013, though the size and timing of the recovery is uncertain due to the delays in the Canterbury reconstruction.

Europe's financial woes and a slowdown in the Chinese and Australian economies are seen as the biggest risks, though New Zealand has space to respond to adverse shocks, the report said.

The IMF said there is a medium likelihood of declining export demand and deteriorating terms of trade, which would reduce GDP growth in New Zealand. That could lead to a fall in household income, which would lead to lower house prices sap consumer demand and growth, it said.

If that downside scenario occurred, the IMF estimates it will trim half a percentage point from 2012 GDP growth and 1 percentage point in 2013.

(BusinessDesk)

Add a comment

Bookmark and Share

News

2017 Budget to be presented on 25 May

8 Feb 2017 Financial
7 Feb 2017 The Government's 2017 Budget will be delivered on Thursday 25 May, and will be centred on providing opportunities for all... more

Conservation efforts underway on Scott Statue

6 Feb 2017 Environment
9 Feb 2017 A hundred years on from its unveiling, conservation efforts are underway to repair and reinstate the white marble statue of... more

Business

Finance Minister requests cost-benefit analysis on DTIs

8 Feb 2017 Business News
8 Feb 2017 A full cost-benefit analysis on Debt-to-Income (DTI) limits and public consultation will be conducted by the Reserve Bank... more

Korean FTA delivers new round of tariff cuts

18 Jan 2017 Business News
8 JANUARY, 2017More local businesses looking to expand into Korea will benefit from the latest round of tariff reductions under the... more

Living

3rd Position, Louis Vuitton America’s Cup World Series

21 Nov 2016 Lifestyle
Emirates Team New Zealand EMIRATES TEAM NEW ZEALAND CLOSES IN 3rd POSITION THE LOUIS VUITTON AMERICA’S CUP WORLD SERIES more

Arts Foundation Award recipients for 2016

14 Nov 2016 Lifestyle
The Arts Foundation Next generation of internationally acclaimed talent among the Arts Foundation Award recipients for 2016Under ... more

Property

NZ house prices gain 11% in October

14 Nov 2016 Property
Article - BusinessDesk Monday 14 November 2016 10:28 AM NZ house prices gain 11% in October, driven by sales of higher value homes By... more

RBNZ sees pressures building in Auckland construction sector

11 Nov 2016 Property By Paul McBeth
Article - BusinessDesk Thursday 10 November 2016 04:04 PM RBNZ sees pressures building in Auckland construction sector By Paul ... more

Migration

Recognised Seasonal Employers employ more Kiwis

8 Feb 2017 Migration
7 Feb 2017 Immigration Minister Michael Woodhouse welcomes a report showing the vast majority of employers who take on seasonal... more

Good progress on investment attraction strategy

8 Dec 2016 Migration
Economic Development Minister Steven Joyce has welcomed news that New Zealand is attracting a higher level of quality international... more

Travel

Weirdest things visitors Google before coming

6 Feb 2017 NZ Tourism
8 Feb 2017 Does New Zealand celebrate halloween?  Is Auckland a dangerous town- these are some of the subjects visitors Google... more

New campaign to get more Aussies to Northland

30 Jan 2017 Travel & Tourism
30 January 2017 A new marketing campaign starting this week to attract Australians to Northland is an excellent approach to... more

Sport

Silver Ferns wrap up Quad Series with big win

6 Feb 2017 Netball
6 Feb 2017 The Silver Ferns finished runners-up in the Netball Quad Series after completing a well-crafted 70-39 win over the SPAR... more

Silver Ferns bounce back against England February 3, 2017

3 Feb 2017 Netball
The Silver Ferns completed a dominant outing to post a 61-37 win against the England Roses in their second match of the 2017 Netball... more

Columns

Gordon Campbell on the Gareth Morgan crusade

11 Nov 2016 Opinion
Column - Gordon Campbell   Gordon Campbell on the Gareth Morgan crusade First published on Werewolf more

Gordon Campbell on the US election outcome

10 Nov 2016 Opinion
Column - Gordon Campbell   Gordon Campbell on the US election outcome more

Kiwi Success

Spencer to be Acting Governor of Reserve Bank

8 Feb 2017 Appointments
7 Feb 2017 Finance Minister Steven Joyce will appoint current Deputy Reserve Bank Governor Grant Spencer as the Acting Governor of... more

Temporary Chairs appointed to Canterbury and South Canterbury DHB

1 Feb 2017 Appointments
30 January 2017 Health Minister Jonathan Coleman has today appointed temporary Chairs to the boards of Canterbury and South... more

Recruitment

Record number of people in employment

1 Feb 2017 Recruitment
1 Feb 2017 Tertiary Education, Skills and Employment Minister Paul Goldsmith has welcomed the record number of New Zealanders now in... more

NZ Government accepts recommendations on pay equity

8 Dec 2016 Recruitment
Hon. Paula Bennett,  Hon. Michael Woodhouse, Hon. Louise Upston 24 November, 2016 The Government will update the Equa... more

s