Prognosian

The purpose of this blog is to keep a record of media, my and other people's comment with regard to where the world's economy, environment, science, (or anything else I find interesting!) is heading. Hence the name. (I always seem to be referring people to articles I have read but can never find them again!)

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Location: New Zealand

Friday, October 07, 2005

NZ Currency- Current Acct

This article speaks for itself...

NZ debt heading for 'banana republic' status
22.09.05
By Adam Bennett

Latest current account figures show New Zealand is headed for "banana republic" levels of debt faster than anyone expected, ANZ economist John McDermott said yesterday. In the year to June, foreign investors hoovered more profits out of the country while strong demand for imports and higher oil prices saw even more cash pumped offshore. That pushed our current account - which measures all our dealings with the rest of the world, including investments and trade - to a deficit of $11.89 billion, close to 8 per cent of GDP. Statistics NZ said the main factors were a rise in income paid to offshore investors and an increase in the value of imports, particularly petrol and other fuel which rose by 32.5 per cent over the year. The deficit was well up on the 7.5 per cent of GDP most economists had expected and a long way above the 5.2 per cent for the June 2004 year when the deficit was $7.2 billion. "At 8 per cent it's very large and very troubling and it will get worse," said McDermott. A current account deficit above 5 per cent of GDP is generally reckoned to be a negative for any economy and tends to weigh on its currency. But the kiwi remains well sought by foreign investors. If the currency stays firm the current account deficit is expected to rise, and if it eases our export sector will take time to recover while imports become more expensive. "So it almost doesn't matter what we do at this point," said McDermott. "New Zealand is going to get a current account deficit of 10 per cent of GDP. That looks, in the words of Paul Keating, like a banana republic." BNZ economist Craig Ebert also believed a figure of 10 per cent of GDP was "probable". He blamed "King Kong domestic demand" and said an interest rate rise was looking more likely. Finance Minister Michael Cullen said the "sharp deterioration" in the current account reinforced his warnings about the danger of National's planned across-the-board tax cuts. "This is no time to be stimulating demand in the economy," he said. "Instead the focus must be on assisting exporters and, in the longer term, on encouraging New Zealanders to save more through initiatives such as KiwiSaver." But Greens co-leader Rod Donald said no matter how hard exporters ran, "they're not going to catch up with the trade deficit ... We've also go to focus on import substitution".

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