NZ current account deficit widens to pre-GFC levels

Rising prices for some imported commodities like petrol contributed to a widening of NZ's current account deficit. Photo / 123RF

New Zealand’s balance of payments current account deficit has widened to $29.7 billion - 7.9 per cent of GDP - for the September 2022 year, Stats NZ said.

This was $13.3b wider than in the September 2021 year.

The largest annual current account deficit prior to Covid was $14.7b (7.8 per cent of GDP) in the December 2008 year, during the global financial crisis, but Westpac said it will not be long before the shortfall starts to shrink.

The widening in the annual current account deficit was mainly due to a $10.2b widening in the goods and services deficit, Stats NZ said.

Total imports of goods and services were $104.6b, up $21.5b from the previous year.

This was largely driven by petrol, diesel and aviation gas, and machinery equipment.

“Rising prices for some imported commodities like petrol, a falling exchange rate, and higher shipping costs all contributed to the annual increase in imports,” institutional sectors senior manager Paul Pascoe said.

Total exports of goods and services were up $11.3b (or 15 per cent) to $86.5b.

“Dairy and meat were the key drivers for the increase in goods exports, with dairy prices continuing to rise in the year ended 30 September 2022,” Pascoe said.

The current account records a nation’s transactions with the rest of the world - specifically its net trade in goods and services, its net earnings on cross-border investments, and its net transfer payments.

Westpac NZ’s acting chief economist Michael Gordon said the current account deficit is a symptom of the overheating in the domestic economy.

“We are, for now, living beyond our means – we have not adjusted our spending patterns to either the loss of export income or the cost-induced surge in our import bill,” he said.

Gordon said he expected the deficit to narrow from here on, however, returning to a more sustainable level of around 3-4 per cent in 2024.

“The year ahead will be a different story. Visitor numbers should continue to pick up from here, judging by the trends in Northern Hemisphere travel. And more importantly, the conditions for a slowdown in domestic spending are already in place.

“Households with a mortgage will be rolling onto substantially higher interest rates in the coming months, which will inevitably eat into discretionary spending.”

The data was broadly in line with market forecasts but now exceeds the peaks reached in the years before the Global Financial Crisis.