4 Sep 2013

NZ immune to investor focus on growing current account deficits

9:19 am on 4 September 2013

Analysts say New Zealand can't afford to ignore growing investor concern about worsening current account deficits.

India and Indonesia have suffered sharp falls in their currencies and stock markets in recent times, due to investors pulling out their money in response to slowing growth and burgeoning deficits.

New Zealand's current account deficit is forecast to top 7% of gross domestic product by 2018.

While investors have pulled their money out of some emerging economies, they remain happy to lend to New Zealand, which analysts put down to the country's track record of paying it back on time.

The Green Party says that can't last forever, and the Government needs to act, including introducing a capital gains tax.

The principal economist at the Institute of Economic Research, Shamubeel Eaqub, says New Zealand isn't like India or Indonesia, which suffer from so-called hot money, or money that tends to flow in and out of a country quickly.

"We borrow a lot of money from overseas and that money has to be directed into the productive parts of the economy so that those investments can repay themselves. But we are not doing enough of that.

"Too much of our money is being directed at house prices, into mortgages, and not enough into businesses that are going to create jobs and future growth."

The Finance Minister, Bill English, says the rising deficit is partly due to the Canterbury rebuild, making it difficult to encourage export growth.