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

NZ urges all parties to make Gaza ceasefire work

27 Aug 2014 News
Foreign Minister Murray McCully says New Zealand welcomes news that an indefinite ceasefire has been agreed by Israel and the ... more

The Dirty Politics Fallout

27 Aug 2014 Politics
3News-Reid Research poll shows that the Conservative Party is on the verge of making it into the next Parliament, even without an ... more

Business

Christchurch property investor wins policy appeal in Supreme Court

27 Aug 2014 Business News
Article - BusinessDesk   Christchurch property investor Ridgecrest wins IAG policy appeal in Supreme Court By Jonathan ... more

Time to rethink India's IT reputation, delegation says

26 Aug 2014 Business News By Pattrick Smellie
Article - BusinessDesk   Time to rethink India's IT reputation, says visiting delegation Aug. 26 (BusinessDesk) - India's... more

Living

Entries open The Hobbit Fan Fellowship Contest

26 Aug 2014 Lifestyle
Air New Zealand Air New Zealand invites Hobbit fans to enter The Hobbit Fan Fellowship Contest for a chance to win a ... more

MTV VMAs 2014: Lorde wins Best Rock Video over actual rock bands

25 Aug 2014 Environment
Singer Lorde shows off her Moonman trophy for Best Rock Video for ‘Royals.’ Lorde, have mercy. The New Zealand pop star... more

Property

House sales down as winter cools market - REINZ

14 Aug 2014 Property
New Zealand house sales fell in July as winter cooled the appetite of house hunters while a drop in properties selling for $400,000... more

NZ property values rise at slowest annual pace in 13 months

7 Aug 2014 Property By Paul McBeth
Aug. 7 (BusinessDesk) - New Zealand property values rose at the slowest annual pace in 13 months in July as rising interest rates,... more

Migration

Who's living next door to you?

20 Aug 2014 Migration
Statistics NZ puts out detailed data on different ethnic groups, down to the 108 people from the Isle of Man. Did you know there are... more

NZ population growth speeds up

14 Aug 2014 Migration
New Zealand's climb to 4.5 million people has been faster in the past year than it has in any other year in the past decade,... more

Travel

Auckland 10th most liveable city - again

19 Aug 2014 Travel & Tourism
Auckland has again been ranked the tenth most liveable city in the world. The Economist Intelligence Unit (EIU) has released its... more

Air NZ Dreamliner to be put on show

15 Aug 2014 Travel & Tourism
An Air New Zealand Dreamliner is to be put on show at a famous air show next week. The Boeing 787-9 aircraft will be exhibited to... more

Sport

Rugby World Cup 2015 Official Team Bases Announced

27 Aug 2014 Rugby
41 team bases selected for use at Rugby World Cup 2015 20 competing teams will be based across England and Wales Team bases selected... more

Emirates Team New Zealand update - 18 points from the last race not enough

26 Aug 2014 Sailing
  Today’s pictures are here, the video here   August 25 2014 There was good and not-so-go... more

Columns

NZ’s UN Security Council bid hangs by a nuclear thread

27 Aug 2014 Opinion By Bob Rigg
On 16 June the International Atomic Energy Agency (IAEA) in Vienna circulated a request backed by 18 members of the Arab League... more

Gordon Campbell on the US somersaults over Syria and Iran

26 Aug 2014 Opinion By Gordon Campbell
  Gordon Campbell on the US foreign policy somersaults over Syria and Iran Amidst the day-to-day reports about the military... more

Kiwi Success

The duo behind NZ's hottest new label

20 Aug 2014 People
We're expecting big things from Harman Grubisa, the new label from Auckland-based friends Madeleine Harman (right) and Jessica... more

Victoria announces new strategic appointments

11 Aug 2014 Appointments
Victoria University of Wellington has announced the appointment of New Zealand’s first Provost, Professor Neil... more

Recruitment

High dollar, hands-off Govt sends workers to dole queue

22 Aug 2014 Recruitment
The loss of up to 100 jobs at Croxley stationery in Auckland is devastating news for their families and the local Avondale... more

On track to surplus, more jobs, higher incomes

19 Aug 2014 Recruitment
New Zealand is on track to Budget surplus this year, backed by good growth, more jobs and higher incomes under the ... more