New Zealand recorded a rare current account surplus in the September quarter, but only just and only because of the Canterbury earthquake.
The current account, the broadest measure of the country's transactions with the rest of the world, was in surplus by $35 million in the September quarter, compared with a deficit of just under $2 billion in the June quarter.
But the result was flattered by a $1.7 billion early estimate of the inflow of reinsurance money following the earthquake. That is likely to be revised significantly upward as more information comes to hand, Statistics New Zealand said.
Stripping that out, the picture is of a modest improvement in the current account, but for all the wrong reasons: a drop in the profitability of foreign-owned companies outstripping declines in exports and spending by tourists.
Compared with the June quarter the balance on goods and services deteriorated by just over $400 million, seasonally adjusted, offsetting an improvement of just under $600 million in the income deficit.
The balance on goods was in surplus by $835 million, but that was down from a surplus of $1.17 billion in the previous quarter, reflecting lower exports especially of meat, Statistics NZ said.
Lower spending by foreign visitors accounted for most of a $67 million widening of the deficit in services.
The investment income deficit of $2.27 billion was $581 million narrower than in the June quarter, driven by a $551 million drop in the profits of foreign-owned companies in New Zealand.
For the full year to September 2010 the current account was in deficit by $5.9 billion or 3.1 per cent of gross domestic product.
But when the one-off impacts of the reinsurance inflow and settlement of a tax case between the banks and the Inland Revenue are excluded, the underlying deficit was $7.3 billion or 3.8 per cent of GDP.
It was driven by a $10.7 billion income deficit - the cost of servicing what by the end of September were net foreign liabilities of $162.5 billion, the legacy of nearly four decades of current account deficits.
It indicates that New Zealand has to borrow overseas most of the money needed to service its overseas debt.
The net debtor position equates to 85.2 per cent of GDP, down from a peak of 90.3 per cent in March last year, but still very high by international standards.
Bank of New Zealand economist Stephen Toplis said that, importantly, the merchandise trade balance was strengthening.
"For the year ended September it was a surplus of 1.7 per cent of GDP. This is the highest reading since March 2002. Moreover, we think it goes higher yet and is set to peak at 2.9 per cent of GDP this time next year," he said.
"Sure, its strength can be attributed to weakness in domestic demand capping past imports, and a very strong terms of trade, but there's nothing wrong with that."
ANZ economist Mark Smith said he did not expect a return to large current account deficits over the next few years.
"In the present environment that would be a recipe for a credit rating downgrade. Instead, we see New Zealand's current account deficit remaining in a 2 to 4 per cent of GDP range over the next couple of years."
* $35m current account surplus for September quarter.
* $5.9b current account deficit for year to September.