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 Election 2017: Labour’s plan to unlock Canterbury’s potential

28 Aug 2017 News
Jacinda Ardern on August 28, 2017 Christchurch’s rebuild will be fast-... more

Updated plan to address Auckland’s growth

11 Aug 2017 News
11 August 2017 Transport Minister Simon Bridges has released a joint report by the Government and Auckland Council, which updates work... more

Business

Rocket launch a huge step for New Zealand’s space industry

25 May 2017 Business News
25 May 2017 Minister for Economic Development Simon Bridges has congratulated the team at Rocket Lab on the successful launch of... more

Increased investor confidence welcomed

29 May 2017 Business News
29 May 2017 Commerce and Consumer Affairs Minister Jacqui Dean today welcomed the Financial Markets Authority annual survey results... more

Living

Austen vs Ashton - NZ's Penny Ashton is back with "Promise and Promiscuity"

17 Sep 2017 Arts By Penny Ashton
In 2016 all my Jane Austen dreams came true when I married my own personal Mr Darcy. I say that not because he had a universally... more

Straight out of Edinburgh - NZ's Modern Maori Quartet heading back to London - interview

28 Aug 2017 Entertainment By Charlotte Everett
Fresh from their critically acclaimed debut season at the Edinburgh Festival, Auckland’s Modern Maori Quartet are heading back... more

Property

New Zealand Housing Affordability Measure released

10 May 2017 Property
10 May 2017 The Ministry of Business, Innovation and Employment’s (MBIE) new Housing Affordability Measure will allow the market... more

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

Migration

Suspension of decision making authority

25 Apr 2017 Migration
24 April 2017Immigration Minister Michael Woodhouse is taking steps to improve Immigration New Zealand’s decision making... more

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

Travel

NZ Election 2017: Tourism fund for infrastructure and conservation

28 Aug 2017 Travel & Tourism
Tourism fund for infrastructure and conservation Posted by Kris Faafoi on August 28, 2017 more

International visitors projected to spend $15 billion

12 May 2017 Travel & Tourism
12 May 2017 New Zealand’s tourism sector is forecast to grow significantly over the next seven years, with international... more

Sport

OPINION | Wallabies came out firing and didn’t wilt

27 Aug 2017 Opinion By Jim Kayes
27 August 2017 @JIMKAYES   Jim Kayes has been covering rugby since the late 1990... more

Praise flows for world champion Black Ferns

26 Aug 2017 Rugby
New Zealand's winning of the Women's Rugby World Cup has been hailed as one of the great women's games as the Black Ferns' powerful... 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

Law Commissioner appointed

29 May 2017 Appointments
29 May 2017 Former Secretary for Justice Belinda Clark has been appointed as Law Commissioner, Justice Minister Amy Adams announced... more

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

Recruitment

Online job ads continue growing strongly

26 Jun 2017 Recruitment
23 June 2017 Tertiary Education, Skills and Employment Minister Paul Goldsmith says the latest Jobs Online report shows strong growth... more

New employment resource for young people

1 Mar 2017 Recruitment
28 Feb 2017 Tertiary Education, Skills and Employment Minister Paul Goldsmith and Associate Education Minister Louise Upston have... more

s