Current account deficit lowest in 20 years

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New Zealand's annual current account deficit reached its lowest level in more than two decades in the year to March, as exports rose and foreign investors earned lower profits from their subsidiaries in this country.

Statistics New Zealand (SNZ) said the annual current account deficit for the year ended March was $4.5b, equal to 2.4 per cent of GDP, the lowest since the year ended September 1989.

It was down from $5.3b or 2.9 per cent of GDP in the year to December, and from $14.6b or 7.9 per cent of GDP a year ago.

The seasonally adjusted current account deficit of $1.29 billion in the March quarter was a $1.63b smaller deficit than in the December quarter.

Unadjusted for seasonal effects, the actual current account balance was a surplus of $176 million, SNZ said today.

It was the first March quarter since 2003 that New Zealand had earned more from overseas than it had spent abroad.

The figures were better than expected, with the median in a Reuters poll having been for a annual current account deficit of $5.07b.

ASB Bank economist Jane Turner said the NZ current account had made "a startling improvement since December 2008, largely owing to the cyclical impact of the recession".

But with the economic recovery now on track, it appeared the " underlying drivers of the current account have turned and the current account improvement could be close to petering out".

Today's result was impressive, underpinned by strong export prices (particularly diary prices) and strong earnings from offshore, Turner said she do not expect it to last.

"Strengthening import demand will erode the trade surplus over the next year, while stronger profitability associated with a stronger economy will see the investment income deficit expand."

Goldman Sachs JBWere economist Philip Borkin said that while the deficit numbers had benefitted from some one-off tax transactions last year, there had still been a considerable reduction in the deficit - "illustrating the rebalancing the economy has undertaken".

"While we expect the deficit to widen again as the year progresses, it should settle at a more sustainable level relative to history given the current mix of growth and de-leveraging theme," said Borkin. "In our view, real headway in correcting the country's external imbalances still rests on a sustained lower New Zealand dollar however."

The increase in exports of goods was mainly due to higher prices, especially for dairy products overseas. "This is the first increase in goods exports for over a year," said balance of payments manager John Morris. "Dairy prices moved significantly."

Profits earned by foreign-owned New Zealand companies fell this quarter, exaggerated by a tax transaction that increased banking sector profits in the previous quarter. Excluding this tax transaction, banks' profits remained flat this quarter. New Zealand investors also earned more from their overseas subsidiaries.


- NZPA / NZ HERALD