Current account deficit widens - less than feared

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New Zealand's annual current account deficit widened in the second quarter, as the nation's Australian-owned banks reaped bigger profits and imports rose with fuel costs.

The deficit was $10.1 billion, or 4.9 per cent of gross domestic product, in the year ended June 30, from a revised $9 billion, or 4.5 per cent of GDP three months earlier, according to Statistics New Zealand.

The actual deficit in the latest quarter was $1.8 billion, greater than the $1.6 billion forecast in a Reuters survey.

The New Zealand dollar didn't move much after the figures were released. It traded at 82.78 US cents from 82.65 cents immediately before the report.

The latest balance of payments data includes revisions as a result of Statistics New Zealand revising the international accounts, resulting in a lower current account gap than previously published and higher net liabilities.

A net inflow of foreign investment helped lift New Zealand's net international liability position to $148.6 billion, or 72.6 per cent of GDP, June 30, from $145.6 billion, or 71.9 per cent of GDP, at March 31.

The government statistician said it also got new information on the value of overseas reinsurance claims from the Canterbury earthquakes. Total overseas reinsurance claims rose to $17.9 billion from $15.7 billion. Overseas reinsurers settled $1.3 billion of the claims in the second quarter, up from the $1.2 billion of settlements in the first quarter. Some $12.8 billion of claims is still outstanding.

ASB economist Jane Turner said the current account outcome was "a mild positive".

She expected the deficit to widen further over the next year to 6.5 per cent of GDP.

"The impact of the past decline in commodity prices is starting to work its way through the trade balance and ongoing recovery in the economy will lift the outflow of investment come.

"Heading into 2014, we expect goods and services trade to strengthen and start reducing the deficit."

A wider deficit over the next year would highlight the country's vulnerability to external financing, she said.

"However, gradual rebalancing of the economy is taking place. The private sector (via the financial system) is gradually reducing its net foreign debt.

" The Government is still increasing its use of foreign debt, but that will also change in the long term once budget surpluses are eventually restored."