Current account deficit narrows as tourism bolsters services inflow

New Zealand's current account deficit narrowed in the fourth quarter, partly bolstered by a larger services balance surplus as tourism continues to boom.

New Zealand's current account deficit narrowed in the fourth quarter, partly bolstered by a larger services balance surplus as tourism continues to boom.

The deficit was $2.3 billion in the three months to December 31 versus a revised third-quarter deficit of $5b, Statistics New Zealand said. The annual deficit was $7.1b, or 2.7 per cent of gross domestic product for the year ended December 2016 versus a deficit of $8.3b or 3.4 per cent of GDP in the prior year.

The biggest quarterly movement was in the services balance, which was a surplus of $1.1b versus a revised deficit of $73 million in the prior quarter. Exports were $5.4b versus $4.5b in the September quarter.

"The number of tourists to New Zealand increased in the December quarter, as did the average amount each tourist spent," said international statistics senior manager Daria Kwon.

The deficit in the goods balance narrowed to $1.5b in the fourth quarter versus a revised $2.6b deficit in the third quarter as goods exports rose to $12.2b versus $10.8b in the prior quarter while imports were $13.7b versus $13.4b in three months to September.

The financial account balance, however, was a deficit of $3.3b versus a revised surplus of $5.7b in the prior quarter.

Statistics New Zealand noted that to finance a deficit, the nation normally borrows funds from overseas. However, in the latest quarter there was a net outflow of investment as banks increased their investment assets held overseas - currency and deposits - and financed it with additional funds sources from within New Zealand, rather than by raising funds from overseas, the statistics agency said.

The balance on the capital account was a $683m surplus in the December quarter versus a deficit of $11m in the prior quarter. The surplus was due to a provisional $694m of reinsurance claims from the November 14 Kaikoura earthquakes, Statistics New Zealand said.

New Zealand's net international liability position was $156.5b or 59.9 per cent of GDP as at December 31, from a revised $166.1b or 64.8 per cent of GDP at September 30. This is the lowest international liability position to GDP ratio recorded, the statistics agency said.

The net external debt position - excluding financial derivatives and equity - was $143.5b or 55 per cent of GDP at December 31, down from $149.1b or 58.2 per cent of GDP on September 30.

"Our external debt position narrowed because our external lending increased by $6.3b while our external debt increased by only $649m," Statistics New Zealand said.