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:
GDP growth was above market expectations for the quarter (0.3%), or
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.