Current account deficit shrinks to $4.3b

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New Zealand's annual current account deficit shrank to a lower-than-expected $4.38 billion, or 2.3 per cent of gross domestic product, in calendar 2010, as foreign liabilities fell.

The latest balance of payments figures show a slight improvement in net foreign liabilities, which fell by $1.3 billion in the last quarter of 2010 to $159 billion, or 81.7 per cent of GDP. That's still high by international standards and the cause of government concerns about New Zealand's high foreign indebtedness.

The quarterly deficit widened $3.52 billion, from $2.15 billion, according to Statistics New Zealand.

Statistics New Zealand said it had increased its initial estimates for reinsurance inflows from $1.7 billion to $3.6 billion, and could be subject to further change as information is received from the insurance industry.

The reinsurance impact of the February 22 earthquake will only become apparent from March quarter statistics onward, but are expected to have a more marked impact on the current account because of the size of the disaster.

When reinsurance flows are stripped out of the numbers, there was a $990 million deterioration in the underlying current account deficit between the September and December quarters, reflecting higher earnings by foreign-owned companies and some large, one-off imports of vessels and aircraft, which reduced the balance of trade surplus in the last three months of last year.

Earnings from overseas tourists were at their lowest level in nine years, Statistics NZ said.