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This is worth a read: https://t.co/gjARfKQ6JB
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7
OCT 11

Current account problem grows again




Credit rating downgrades from Fitch and Standard and Poor’s have once again highlighted New Zealand’s problem with balancing its current account with the world. Low local savings and an appetite for asset backed offshore debt, combined with a lack of the focus on the tradable sector are once again driving our current account deficit.

Fitch also identified the problem:
"The economy's high net external indebtedness reflects a persistent current account deficit, peaking at 8.9% of GDP in 2008. The deficit corrected sharply amid recession in 2009-2010, but Fitch projects it will widen again to 4.9% in 2012 and 5.5% in 2013 as domestic demand recovers," it said.

The graph below shows that indeed the current account has worsened over the past year after closing in the previous two years.



The credit rating downgrades have come soon after weak GDP figures of 0.1 percent growth in the June quarter. There has been a lot of talk from the Government about how New Zealand is in a stronger position to deal with another downturn than other countries, but even the northern economies with debt problems have managed better growth than New Zealand.

The currency issue tops the list for the Government to address as a recent drop in the dollar cannot mask the lasting impact of an overvalued currency. We will not see stable tradable sector growth, and the resulting debt turnaround, until Government policy issues in this area are sorted out. The highly skilled, well paid job base will continue to contract as exporting firms hold back on investment while the overvalued and volatile currency persists.
 


tags: current accouint deficit, credit rating, external debt, currency
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