https://t.co/tlXsLXZarK
26/06/2017 9:21 PM
RT @rethinkecon: 'Going Beyond Exchange' from @TheMinskys @HeskevanDoornen https://t.co/GVNeY8gyIQ
23/06/2017 8:53 PM
RT @ChrisGiles_: Hard or soft Brexit? The six scenarios for Britain https://t.co/Fk2hj8muah via @FT
23/06/2017 8:52 PM
This is worth a read: https://t.co/gjARfKQ6JB
20/06/2017 9:58 PM
RT @PositiveMoneyUK: ...and it’s almost impossible to reduce our debts without causing a recession - Welcome to the debt trap! https://t.co…
20/06/2017 9:49 PM
@Parker_Banking The pirates are in the accendency - on the pirate scale there is no difference between Trump and Pu… https://t.co/XbxmE9OJao
17/06/2017 1:11 PM
RT @PositiveMoneyUK: Why are House Prices So High? https://t.co/kYNWqTc6kP
16/06/2017 3:57 PM
@Omearanz Tax incentives point away from productive investments - asset price inflation is not productive of itself… https://t.co/zOCXPEj93U
15/06/2017 5:00 PM
@Parker_Banking People without income and assets cannot be consumers - superfluous to economy - superfluous to soci… https://t.co/EHIOqdcNXH
15/06/2017 12:18 PM
@Parker_Banking Full of rah rah platitudes: happened before no worries.Then machines replaced muscle/debt low, now… https://t.co/SMvdIfmpi1
15/06/2017 12:15 PM
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7
MAY 12

Traded sector the fix for financial outflows




Last month’s newsletter looked at New Zealand’s current account deficit and its implications. This month I would like to have a closer look at how the current account is structured.

 



The graph shows that the negative financial flows are not offset by the trade flows. The trade balance has hovered around zero over the long-term while financial outflows far exceed financial inflows. We are starting to see the same trends that existed from 2003 to 2008 redevelop and it is expected to worsen over the next few years.

These financial outflows are hard to address in the short to medium term as they stem from things like repatriated profits from foreign owned companies based in New Zealand and interest income from investments here. Over a longer term increased savings would require less investment from overseas, but this would take some time.

Essentially to get the current account back into surplus we need to start generating a large and consistent trade surplus. Better returns to exporters would lead to more investment in the external sector, and more investment will lead to higher activity: better returns require the exchange rate issue to be addressed.

Unfortunately we saw a rather unfortunate comment from John Key last month describing concern over the currency as ‘la la land stuff’. The comment was superficial and ignored the simple fact that the United States, the United Kingdom, Switzerland, Brazil, China and Singapore, to name a few, are all engaged in currency management – it seems ‘la la land’ occupies a substantial part of the planet.

If we want to grow New Zealand’s external sector we cannot afford to take a risk adverse attitude to economic policy and we cannot ignore the competitive element – that is if another country works to lower their exchange rate it puts our own traded sector at a disadvantage if we don’t respond.

To put the impact of our economic policies in perspective Switzerland had a current account surplus of $80 billion last year.


tags: current account, exchange rate, trade, financial flows
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