New Zealand Current Account Deficit Now 8.3% Of GDP

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New Zealand’s current account deficit blew out in the third quarter, widening to NZ$5.2 billion from NZ$3.0 billion (revised from NZ$2.9 billion) in 2Q. The deficit in the year to September rose to NZ$14.2 billion from NZ$13.7 billion in the year to June; the deficit rose from 8.1% of GDP to 8.3% in the third quarter, according to Statistics New Zealand.

The key driver of the worsening quarterly deficit was the deteriorating goods balance, which fell from a slight surplus in 2Q to a massive deficit of NZ$1.6 billion in the most recent quarter. Exports declined while imports rose on the back of the strong NZD and firm domestic demand. Robust domestic demand has seen the current account deficit widen from 3.2% of GDP in early 2002 to over 8.0% this year. The services balance also widened, meaning that the goods and services balance blew out to more than NZ$2 billion from close to zero in 2Q. According to Statistics New Zealand, the current account deficit was financed by a net capital inflow of NZ$5.4 billion in 3Q as inbound foreign investment of NZ$7.9 billion exceeded investment abroad of NZ$2.5 billion.

In 2008, the trade balance should improve as the NZD depreciates, boosting the competitiveness of Kiwi exporters. The income balance, however, will likely remain in deficit even though Kiwi investments abroad should pick up slightly. As such, the current account deficit should narrow toward 8.0% of GDP in 2008.

• In seasonally adjusted terms, the current account deficit rose NZ$120 million to NZ$3.6 billion in 3Q.


• The CAD for the year ended September 2007 rose to NZ$14.2 billion (8.3% of GDP), compared with $13.7 billion (8.1% of GDP) previously.


• Net international liabilities were NZ$151.1 billion, up 1.6% from the June 2007 quarter.

ENDS

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