New Zealand's current account deficit worsened to $3.91 billion in the June quarter, Statistics New Zealand (SNZ) said today.Worsened? This seems to imply that the deficit is a bad thing, why? Another way of saying exactly the same thing is to say, "The surplus on the capital account just got larger", what is bad about that?
The report goes on
The current account, also known as the balance of payments, measures all of New Zealand's transactions with the outside world.Wrong! The current account is NOT also known as the balance of payments. The current account is part of the balance of payments. The BoP can not be in deficit or surplus as it is by construction always zero. The surplus/deficit on the current account is offset by the deficit/surplus on the capital account.
I do wish someone would teach journalists in this country some very basic economics.
Hi there,
ReplyDeleteI am not a journalist, nor an economist, but I am interested in knowing exactly why the CAD is not a bad thing. What is it exactly anyway?
The best short answer to this question is to refer you to this piece by Matt Nolan at Infometrics.
ReplyDeleteThat whole thing of calling the current account deficit a balance of payments deficit kills me as well. Back in the day Stats NZ used to say it as well - it drove me nuts!
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