Current account deficit widens to $30.6b, ‘far too out of balance’

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The deficit equated to 7.6 percent of the value of the economy, unchanged from June, but improved on 8.3 percent last year.
Photo: RNZ / Rebekah Parsons-King

New Zealand continues to chase a champagne lifestyle on a beer budget, as the yawning current account deficit shows.

Stats NZ data showed the deficit for the year ended September was $30.6 billion, up about $400m on the previous quarter, but down about $500m on a year ago.

The deficit equated to 7.6 percent of the value of the economy, unchanged from June, but improved on 8.3 percent last year.

The data showed the goods deficit – physical imports and exports – widening as export earnings fell further than import costs, but there was an improvement in the service side of the economy, as revived tourism lifted returns.

ANZ senior economist Miles Workman said the narrowing of the deficit looked to have stalled, and the country’s external position was “far too out of balance”.

“Fiscal consolidation and tight monetary conditions should help fix that in time, but until it does New Zealand remains vulnerable to a wide range of possible shocks – for example drought, global wobbles – that could slow progress further and potentially weigh on our sovereign credit rating.”

Credit rating agencies have long warned about the size of the current account deficit and the high level of foreign debt, and warned that without an improvement the country’s top level ratings would be under pressure.

Overseas investors also earned more from their New Zealand investments, driven by higher local interest rates.

The gap between New Zealand’s overseas financial assets and liabilities was marginally improved at $191.9b, or 47.9 percent of the value of the economy.

The data was worse than expected by analysts, and reaffirmed New Zealand’s dependence on overseas borrowing to pay its bills.

“All up, New Zealand has a potentially lengthy path towards macroeconomic sustainability to walk. And the Q3 data suggest progress is slow,” Workman said.

He said the economy would have to weaken further, with interest rates staying higher for longer and a cut in government spending.