KEY POINTS:
The recovery in New Zealand's current account balance shuddered to a halt with the annual deficit hitting a record $14.97 billion in the June quarter.
Main factors swelling the deficit were a rise in goods imports, mainly petroleum and petroleum products and in capital goods related to the
oil industry, and foreign investors earning more on their New Zealand investments.
Releasing the data today, Statistics New Zealand said a withdrawal of New Zealand investment from abroad was the key feature of current account financing in the June quarter.
It was the first time since the June 2006 quarter that the current account deficit had been financed that way.
The $5.2b divestment from abroad was primarily in the form of reduced lending to overseas, partly offset by a $600m withdrawal of foreign investment from this country.
Economists estimated the annual deficit to be 8.3 per cent of gross domestic product, although SNZ will not release the official figure until GDP data is published next Thursday.
The current account, also known as the balance of payments, measures all of this country's transactions with the outside world. The latest annual deficit was an increase from $14.21b for the year ended March.
For the June quarter the current account deficit was $3.91b, compared to the median expectation in a Reuters poll of economists for $3.3b.
Seasonally adjusted the current account deficit was $4.63b in the June quarter, an increase of $1.1b from the March quarter.
Seasonally adjusted imports of goods were up $753m in the quarter to $11.64b, while income from foreign investment in this country was up $214m.
Goods exports were down $115m seasonally adjusted to $10.58b, with a significant drop in dairy product volumes being the main cause of the drop.
It was the second consecutive quarterly fall in dairy product volumes and was mainly the result of drought earlier in the year, SNZ said.
ASB economists Nick Tuffley and Jane Turner expected the stalling of improvements to the current account deficit was likely to extend further in the short term.
But next year the deficit should once again be narrowing, particularly as the trade balances benefited from a weaker New Zealand dollar and oil prices, and as weak domestic spending dampened import demand and domestic profits, they said.
In contrast, Deutsche Bank chief economist Darren Gibbs expected only marginal improvement in the current account deficit in the next two years.
A stronger trade balance was likely to be largely offset by a further rise in the investment income deficit and some weakening in the services balance, Mr Gibbs said.
"With New Zealand's interest rates likely to decline substantially over the next 12 months, funding that deficit still seems likely to require a much weaker exchange rate than prevails today."
ANZ was also pessimistic about the chances of much improvement in the current account deficit.
It was difficult to envisage a material improvement, with terms of trade now levelling out and a higher cost associated with servicing the existing large stock of debt, ANZ said.
The rotation of growth away from the domestic side of the economy to the export sector would be stymied by recent events and a softer global growth climate.
Historically, improvements in the deficit had been dominated by import adjustments as opposed to improved export competitiveness.
- NZPA