Invisibles deficit swamps surplus

The balance of payments took a turn for the worse in the June quarter as a growing invisibles deficit swamped a record trade surplus.

The country spent $5.6 billion more than it earned from trade and investment with the rest of the world in the year to June.

The current account deficit equated to 3 per cent of gross domestic product, up from 2.4 per cent in March and higher than market expectations of 2.8 per cent.

The average over the past 10 years has been 5.5 per cent.

The balance of goods in the June quarter was a $1.2 billion surplus, the seventh surplus quarter in a row and the largest since comparable statistics began in 1987.

ANZ economist Mark Smith expects it to remain in the black until the end of the year, given where export commodity prices are and the lags between them and the trade data.

"It's a different story on the services balance, however," he said.

"While visitor numbers have managed to hold and even grow slightly, fewer are coming from the higher-spending countries and more from Australia, who tend to have shorter stays and spend less per day."

The balance on services was a deficit of $76 million, seasonally adjusted.

As expected the investment income deficit widened, to $2.7 billion, as foreign investors' earnings from their investments in New Zealand jumped $480 million to $4 billion.

The offsetting rise in New Zealanders' earnings on investments abroad was a more modest $50 million to $1.26 billion.

The latest deficit leaves New Zealand a net debtor to the rest of the world to the tune of $164 billion, or 86.5 per cent of GDP. That is up from 85.9 per cent three months ago - revised down from 88.9 per cent by the inclusion of more data from Inland Revenue.

Economists expect the deficit to continue to widen from here, driven by improving profits and a renewed appetite for imports.

"However we do not expect a return to current account deficits of 7 per cent plus," Smith said.

"In the current environment that would be a recipe for a credit rating downgrade. Instead we see a sustainable deficit in the 4 to 5 per cent range, which is where we seem to be headed absent a material structural change that would get New Zealanders to materially alter their savings behaviour."