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

Crime falls for fifth year in a row

1 Apr 2015 News
Police Minister Michael Woodhouse welcomes crime data released today showing recorded crime has dropped by more than 100,000... more

Tax collection on employee share schemes examined

1 Apr 2015 News
Revenue Minister Todd McClay has welcomed the release this week of an Inland Revenue officials’ issues paper that seeks... more

Business

PAYE for NZ firms proposed in biggest tax shake-up since '57

31 Mar 2015 Business News By Pattick Smellie
March 31 (BusinessDesk) - The government is floating the idea of businesses paying their tax on a pay-as-you-go (PAYE) basis, like... more

Mark Powell to depart Warehouse by Feb 2016 after 4 years

30 Mar 2015 Business News By Jonathan Underhill
March 30 (BusinessDesk) - Mark Powell will step down as chief executive of Warehouse Group by February 2016 after 14 years, the last... more

Living

2degrees lights up Auckland Harbour Bridge in World First

13 Mar 2015 Lifestyle
Fusing light, music, mobile and one of Auckland’s most recognisable landmarks together – 2degrees launched another Kiwi... more

Third Thursday Set to Groove

9 Mar 2015 Lifestyle
The sounds of legendary jazz musician Charles Mingus is set to raise the beat of Wellington’s waterfront on 19 March, when the... more

Property

NZ property values rise at fastest pace in 9 months in March: QV

1 Apr 2015 Property By Suze Metherell
  NZ property values rise at fastest pace in 9 months in March: QV April 1 (BusinessDesk) - New Zealand residential property... more

NZ house prices rise 3.6% in February

12 Mar 2015 Property By Tina Morrison
  NZ house prices rise 3.6% in February, led by a 14% jump in Auckland prices March 12 (BusinessDesk) - New Zealand residential... more

Migration

PM plays down claim war criminals are living in NZ

2 Mar 2015 Migration
Prime Minister John Key says he is not aware of any suspected war criminals from the former Yugoslavia in New Zealand. The claim that... more

NZ migration rose to record in 2014

30 Jan 2015 Migration By Tina Morrison
  NZ migration surged to record in 2014, helped by robust economy Jan. 30 (BusinessDesk) - New Zealand migration surged to a... more

Travel

Foss welcomes agreement for rental vehicle code

17 Mar 2015 Travel & Tourism
Associate Transport Minister Craig Foss is welcoming a move by the rental vehicle industry to establish a Code of Best Practice to... more

Productive discussions on Queenstown’s tourism workforce

6 Mar 2015 Travel & Tourism
Sustainable workforce solutions were at the centre of discussions between Government Ministers and tourism industry representatives... more

Sport

NZ Kiwi Ferns regroup under new coach

1 Apr 2015 Rugby
  Incoming NZ Kiwi Ferns coach Alan Jackson will be missing several veteran performers, when he leads the national... more

ICC announces Team of the ICC Cricket World Cup 2015

31 Mar 2015 Cricket
The team was chosen by a select group of experts who were given the task of picking a balanced side on the basis of performances in... more

Columns

Gordon Campbell: The inadequate response to sexual violence

1 Apr 2015 Column By Gordon Campbell
On combatting sexual violence, the government has finally begun to undo some of the problems that were of its own making. Early in... more

Gordon Campbell on the Northland by-election

30 Mar 2015 Opinion
Column - Gordon Campbell   Gordon Campbell on the Northland by-election Supposedly, Winston Peters’ victory in Northland... more

Kiwi Success

Diligent names Brian Stafford as CEO, replacing Sodi

1 Apr 2015 Appointments By Tina Morrison
Diligent names Brian Stafford as new CEO; Sodi to focus on product design and development April 1 (BusinessDesk) - Diligent Board... more

Tower names Seniors Money's Brett Wilson as CFO

18 Mar 2015 Appointments
  Tower names Seniors Money's Brett Wilson as CFO, replacing Boggs March 18 (BusinessDesk) - Tower, the listed general insurer,... more

Recruitment

NZ Government moves to strengthen employment standards

26 Mar 2015 Recruitment
Workplace Relations and Safety Minister Michael Woodhouse today announced a package of measures to strengthen enforcement of minimum... more

RESEND: 63% of Warehouse permanent staff now on career wage

20 Mar 2015 Recruitment By Fiona Rotherham
  RESEND: Warehouse says 63% of permanent staff now on 'career retailer wage' (Fixes fourth paragraph to show Warehouse is... more