Current account deficit a huge $13.7b

New Zealand's current account deficit - the country's financial dealings with the outside world - was a monster $13.7 billion in calendar 2005, Statistics New Zealand said today.

The deficit equates to 8.9 per cent of Gross Domestic Product (GDP), the worst ratio since 1986 when it was also 8.9 per cent. The worst-ever deficit was 13.4 per cent in 1975 when the effects of the oil shock were felt. The 2005 figure was a record deficit in monetary terms.

The 2005 deficit compares with a $9.8 billion deficit in 2004 which amounted to 6.7 per cent of GDP.

The seasonally adjusted data for the December quarter showed a deficit of $3.38 billion, only slightly better than the $3.84 billion shortfall in the September quarter.

Today's figures were exactly on the median forecasts of economists but are likely to put further downward pressure on the New Zealand dollar which has fallen 12 per cent this year and yesterday dropped under US62c for the first time in 21 months.

The $3.9 billion widening of the deficit from 2004 was mainly due to a $2.1 billion increase in imports together with a $1.4 billion increase in income earned here by foreign companies.

The annual deficit has widened for each of the last 11 quarters and is now $9 billion larger than the $4.7 billion deficit in the March 2003 year.

The main reason for the widening has been that the goods balances (exports against imports) has gone from surplus of $3.6 billion in the September 2001 year to a deficit of $3.9 billion in the December 2005 quarter.

Secondly, the investment income deficit (earnings on New Zealanders' investments overseas against foreigners' earnings on investments here) has widened from $7 billion to $10.8 billion.

The slight improvement in the quarterly deficit from the September quarter was due to an increase in the amount of exports and a small reduction in imports.

Government Statistician Brian Pink that this improvement should be treated with caution as it was too early to conclude that the deficit would continue to narrow.

In fact, economists are concerned that New Zealand has racked up such a whopping deficit when commodity prices for its exports have been at 30 year highs.

They worry that as commodity prices come off, but oil prices remain high, the position is likely to get worse before it improves.

Exports rose $386 million in the December quarter with an increase in volumes slightly offset by lower prices. Dairy, meat, food and beverage exports rose. The value of goods imported fell.

During 2005, New Zealand had a net inflow of capital of $12.2 billion to fund the deficit. This came from a $4.3 billion withdrawal of New Zealand investment from abroad and net flow of $8 billion of investment into New Zealand -- mainly bond issues.

New Zealand's net foreign debt rose $10.5 billion over the year to $136.5 billion.

First NZ Capital economist Jason Wong said there were no real surprises in the data.

"There's no real implications for the market. The deficit is probably close to peaking out around these levels ... the beginning of the end," he said.

The New Zealand dollar was little moved after the data, buying US62.53c shortly after 11am, compared to US62.60c at the beginning of today's local session.

ANZ National economist Sean Comber said the way the market has reacted reinforces the figures were in line with expectations and there was no nasty surprise as some people had expected.

- NZPA