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'Structural shift' in balance of payments

NZ Newswire logoNZ Newswire 7/06/2017 Paul McBeth

New Zealand's shrinking current account deficit is the result of a structural shift where local firms have adapted to a strong kiwi dollar and are taking advantage of opportunities in Asia, says Finance Minister Steven Joyce.

Speaking to Parliament's finance and expenditure select committee on Wednesday, Mr Joyce said exporters have done a "great job" of adjusting to a stronger New Zealand dollar, which at 77.12 on a trade-weighted basis is about 8.7 per cent higher than its simple moving average over a 20-year period.

"We've seen a structural shift in the balance of payments," Mr Joyce said. "I think there's still room to improve."

The county's current account deficit shrank to an annual 2.7 per cent of gross domestic product in the December from 3.4 per cent of GDP in the same period a year earlier, bolstered by a larger services surplus from New Zealand's tourism boom.

Statistics New Zealand will publish the first-quarter balance of payments figures next week, which Bank of New Zealand economists say could show an even smaller deficit after recent data showed the nation's terms of trade at a 44-year high in the first three months of the year.

The balance of payments cropped up at the select committee hearing, where Mr Joyce announced the pre-election fiscal and economic update would be released on August 23.

This comes after the Treasury's budget forecasts showed a "significantly smaller" current account deficit than that projected in the half-year update in December.

Speaking after Mr Joyce, Treasury chief economic adviser Tim Ng told the committee the world's low interest rate environment meant New Zealand's finance bills paid largely to the big four Australian-owned banks were smaller than in previous economic cycles.

The higher terms of trade and less negative savings also contributed to the narrower current account deficit.

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