Balance of payments best for 15 years

Press, 9 February 1989, Page 6

Balance of payments best for 15 years

By

PATTRICK SMELLIE

in Wellington

Manufacturing holds the key to whether the balance of payments will continue to improve at the astonishing rate of last year.

Figures released yesterday by the Statistics Department show that the balance of payments deficit in the year to December, 1988, had fallen $2.5 billion over the year to stand at $389 million. At that level, the best for 15 years, a balance of payments surplus is now a possibility. The balance of payments measures New Zealand’s dealings with the rest of the world. A balance of payments deficit means New Zealand has to borrow overseas to fund it. A balance of payments surplus means that New Zealand is getting richer. In the month of December a balance of payments surplus of $367 million was recorded. But economists said much of the boost came from the combination of high prices for traditional land-based exports, a

lower dollar, and the depressed demand for imports last year. In December imports continued static, measuring $959 million, against $1,075 billion in December, 1987. JStrong growth in export prices for traditional exports such as wool, beef, and sheepmeats were not matched by increasing production. Production in those three areas was declining because reduced fertiliser applications on New Zealand farms were starting to take their toll. The effect of less fertiliser was in lower stock numbers. The only area of growth appeared to be dairying, where some beef farmers were convertinng herds to dairy production. Another important factor was that wool and meat export receipts appeared to be falling earlier this year than is

normally the case. This raised the possibility that a sharp downturn in the balance of payments could occur in May or June, when the usual seasonal pattern would be for improvement. This would be because of selling product earlier than the usual seasonal pattern. Also important to the December balance of payments results was the fall in the New Zealand dollar in the last half of last year. According to the Reserve Bank’s tradeweighted exchange rate index, the New Zealand dollar was at its weakest against the main trading partners last year in December at 59.9. It peaked at 67.1 in June. The point economists are making is that the dollar has fallen further in the New Year. The dollar measured around

58 on the Reserve Bank index at the end of January, largely because of falls against the American and, particularly, the Australian dollar. From an exchange rate of around Aust93c last February, the New Zealand dollar is now trading around Aust6Bc. This is good news for New Zealand manufacturers, whose principal market is Australia. Fifty per cent of our manufactured exports are sold there, excluding aluminium. While international prices for our traditional exports appeared to have peaked in the meantime, and volumes of those exports were likely to fall, there was strong opportunity for growth in exports of manufactured goods, economists said. “If our manufacturers can’t be in Australia at this exchange rate, they shouldn’t be there at all,”

said one. With increasing evi-. dence that imports are beginning to rise — and thereby offset some of the gains on the export front as measured by the balance of payments — improved returns from manufacturing were the key to a continuing improvement in the balance. The most intractable part of the balance of payments, the invisible balance, which includes interest payments on foreign debt, showed minimal improvement in the year to December, falling from a deficit of $3.85 billion in 1987 to a deficit of $3.56 billion in 1988. The monthly improvement in the balance of payments on current account, however, increased to $2l million, from a $l3 million a month improvement noted in the November results.