September quarter current account – GDP primer

Today’s Balance of Payments release put the current account deficit at 8.3% of GDP.  This was right on the button of market expectations, however some interesting issues cropped up which will be important for tomorrows GDP release.

The actual current account deficit was a touch worse than market expecations, enough to make the deficit as a proportion of GDP 8.4% if market expectations for tomorrows GDP result held.  By itself this would indicate that either:

  1. GDP growth was above market expectations for the quarter (0.3%), or
  2. The GDP deflator is higher than we anticipated

Both of these results would cause a headache for the Reserve Bank.  However, the story becomes a little more complicated.

Statistic NZ revised their national accounts figures up until March 2007 in November.  This, in unison with some other information has led to revisions to the Balance of Payments all the way back to March 2000, indicating that GDP may have been revised.

Overall, as the March current account as a proportion of GDP figure was revised, but the current account figure for March wasn’t, it is likely that these revisions have been upwards.  This raises a third possibility that the improvement in GDP was the result of an upward revision in the level of GDP, but no change in the growth rate of GDP. 

This would be the best outcome for the Reserve Bank as it would imply that momentum in the economy was no different to what they expected.  However, it may imply that resource pressures are even more elevated than current figures suggest.

With the sensitivity surrounding a potential lift in interest rates by the Reserve Bank, tomorrow’s GDP result will take on a large amount of significance.

5 replies
  1. David Baigent
    David Baigent says:

    Are the revisions of the National Account a rewrite of recent history to make the numbers more closely resemble what happened, or are they an exercise to make the actual situation a little less blameworthy..?

  2. Kiwi Trader
    Kiwi Trader says:

    Its the inflation data in January that will be the interesting number.
    That will remind the markets that the RBNZ has no room to move this year unless we get an across the board slowdown. That still looks very unlikely.
    Cullen’s finger is on the spend button. But then Bollard’s finger is on the hike button. The die is cast.

  3. Oliver Woods
    Oliver Woods says:

    It will definitely be interesting observing whether there is going to be this downturn that everyone seems to be talking about this year. With this muddling of statistics, it honestly would not surprise me that if the Reserve Bank and Treasury started modifying statistics to meet their own forecasts :P.

    As always, my institutional economic/mercantilist bones in my body shiver when I see the big balance of payments account deficit high as it always is.

    Irrespective of inflation, minimum wage changes, tax cuts and such short term relatively cyclical issues and policy decisions, one really has to wonder from a realist perspective what years and years of balance of payments deficits are actually caused by, and what it means beyond numbers and statistics.

  4. Matt Nolan
    Matt Nolan says:

    Hi guys, sorry I haven’t been around I’ve been trying to write something on the precommitment value of management (to no avail 🙂 )

    David, the revisions to GDP figures occur as sometimes real data does not appear for a few years, and as a result a bunch of figures in it are provisional. In this case most of the revisions were back in 2004, so nothing very interesting happened 🙂

    Kiwi Trader, I agree that the RBNZ is pretty stuffed here, and a rate hike still looks likely. The NZ economy is not that weak, that is the US economy :).

    Kimble, bunny rabbits are awesome, I’ll have a look over the article a bit later on 🙂

    Oliver, I didn’t realise that people thought the economy was going to tank, all the forecasts are for reasonably strong growth. The reason for this is terms of trade shock, domestic consumption will tank but once dairy volumes and meat prices recover it will be all good. What is causing the BOP deficit is an interesting question. I’ll do a blog post on it at some point. However, people on the left and the right can blame the other side for it if they really want to 🙂

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