Fall across a range of commodities, particularly dairy products, hits trade balance.

The gap between what New Zealand earns from the rest of the world through trade and investment and what it pays widened in the June quarter as falling dairy exports started to weigh on the trade balance.

The current account balance was $1.1 billion, following a bumper $1.5 billion surplus in the March quarter when goods exports hit a record high.

The fall in exports occurred across a range of commodities, Statistics New Zealand said, but dairy products were the most significant, falling in volume and price.

Dairy prices have continued to fall since the end of June in Fonterra's fortnightly auctions. Westpac yesterday cut its forecast for this season's payout to $5.30 a kilogram of milksolids from $8.40 last season.

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For the year ended June the current account deficit was $5.8 billion, equivalent to 2.5 per cent of of gross domestic product. It is the smallest the annual deficit, measured against the size of the economy, has been for three and a half years.

But economists expect it to get worse from here. Consensus forecasts have the annual deficit over $10 billion by March next year and $13 billion the year after.

New Zealand's seasonally adjusted current account balance was a $2.0b deficit in the June 2014 quarter, up $1.4b from the March quarter's deficit

Chart:Statistics NZ

ASB economist Christina Leung said the June quarter was likely to mark the low point in the annual deficit relative to GDP as weaker commodity prices would start to impact on the trade balance over the second half of the year.

"The terms of trade will fall noticeably over the second half of 2014 as weaker export commodity prices dampen export receipts after the stellar past dairy season," she said. "Meanwhile, domestic demand will remain firm, including a further increase in construction activity. Consequently, import demand will lift further." ASB expects the current account deficit to peak at or above 6 per cent of GDP in late 2015.

In the June quarter the services balance was almost unchanged on a seasonally adjusted basis at a surplus of $460 million, while the income deficit was $100 million wider at $2.8 billion. Over the year foreign-owned companies reinvested 47c in the dollar of their $8.1 billion in profits, repatriating the rest in dividends.

The cumulative effect of decades of current account deficits is $336 billion of foreign claims on the New Zealand economy, or $150 billion net of New Zealand assets abroad.

The $150 billion of net liabilities is equivalent to 65.3 per cent of GDP. It is the lowest, measured against the size of the economy, that measure has been for 13 years.

It had been assisted by ongoing change in the composition of banks' funding, from offshore term borrowing to domestic deposits, Bank of New Zealand economist Craig Ebert said.

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But it is flattered by the fact that $4.9 billion of earthquake-related claims on foreign reinsurers yet to be paid out - about a quarter of the total. In the meantime the claims count as foreign assets, without which the ratio of net foreign liabilities to GDP would be more than 2 percentage points higher, but still well down on the peak of 86 per cent five years ago.

As the inflow of reinsurance money dwindles the associated buying pressure on the New Zealand dollar will moderate. In the latest quarter net foreign debt rose by $2 billion to $142 billion, but that was offset by valuation gains on New Zealand-owned foreign shares.