Latest BoP figures show NZ sinking deeper into the red, but O’Connor is doing his bit to put things right with CPTPP talks

Buzz from the Beehive

The bothersome economic news today is that New Zealand’s GDP fell by 0.6% in the December quarter, weaker than market forecasts of a fall of around 0.2% and much weaker than the Reserve Bank’s assumption of a 0.7% rise.

This followed the even-more-bothersome news yesterday that the country’s current account deficit has blown out sharply over the past two years to hit 8.9% of GDP by the end of 2022, the biggest deficit as a share of GDP since the mid-1970s.

As Westpac economists pointed out, the current account deficit is a symptom of a country that is living beyond its means.

Monetary and fiscal stimulus in response to the Covid shock has left the economy overheated, as demonstrated by the extremely tight labour market and the surge in inflation. Essentially, we haven’t adjusted our spending patterns to reflect either the shortfall in our export income or the rise in the cost of living. 

Westpac gave us much to muse on, as we consider our options for getting the books into better shape: