New Zealand’s current account deficit expanded to a record 8.9% of GDP in December and could risk a credit rating downgrade for New Zealand. Put simply the current account deficit shows how much more we spend than earn. In dollar terms – New Zealand’s deficit was $33.8 billion over the past year.
The ballooning of the current account is something that concerns me because it can affect what others around the world are thinking of us. Now I am not the kinda guy to normally care what others think, but when it comes to global perceptions of the health of a country’s books things begin to matter. Global rating agencies factor in the current account deficit when they set credit ratings – and these credit ratings can have a direct effect on risk premiums and, in turn, interest rates our government and financial entities can obtain in global wholesale markets.
Already we have seen a warning from S&P that our current account deficit could put New Zealand’s credit rating on a downgrade notice. For now this is just a warning, but given that it coincides with other broader concerns about our households’ and government’s books, we would be wise to reflect….
Cool the jets with too much frivolous debt-fueled consumption.