Hard on the heels of the recent news that NZ has the lowest unemployment rate in the developed world, the Herald reports that NZ also has the highest official interest rates of anywhere in the world, and a huge current account deficit.
“New Zealand’s official interest rate is currently the highest in the industrialised world, at 7 per cent, but investors are starting to consider other matters like the beating the high exchange rate has given the country’s export sector. The annual current account deficit hit 8 per cent of gross domestic product in the second quarter and is still widening. Labour pressures remain strong, however — compounding expectations of another interest rate hike here next month.”
Incidentally 7% is more than twice my (adjustable rate) mortgage rate. The current account deficit of 8% compares with the already frightening 6.3% in the US (see this CNN article). The large current account deficit can be expected to lead to a drop in the value of the dollar. Yet the US$ is actually appreciating while the NZ is falling, perhaps reflecting the fact that foreign investors see greater inherent strength in the US than in NZ.
Overall, I think these numbers reflect the fact that NZers are much less well-off economically than Americans – high interest rates and a falling dollar.