KEY POINTS:
Data due this week is expected to show New Zealand's current account deficit remained high over the June year, but economists say it will soon improve when the effects of high dairy prices start to kick in.
The balance of payments data record the value of New Zealand's
transactions in goods, services, income and transfers with the rest of the world.
It also reflects how the country stands with the rest of the world in terms of its financial assets and liabilities.
The deficit represented 8.5 per cent of gross domestic product (GDP) in the year to March, down from its peak of 9.6 per cent in the June 2006 year, but a pause in the improving trend is expected from Thursday's release.
ASB Bank chief economist Nick Tuffley expects a $3.3 billion deficit for the June quarter and a $14.1 billion deficit (8.5 per cent of GDP) for the June year.
Foreign investors take a dim view of such large current account deficits, but the New Zealand dollar has so far managed to weather any deficit-related fallout.
Economists do not however rule out another sell-off in the New Zealand dollar if the deficit remains high for much longer.
"What the data may well do is reinforce the fact that we are a fairly highly indebted country running a sizeable deficit relative to the size of the country, in a world that is not quite so keen to carry risk," UBS New Zealand economist Robin Clements says.
"As the year progresses, I would expect the current account to get back on to an improving trend. Some exchange-rate led export growth will help as well."
Tuffley says the June quarter will not pick up the "tidal wave" of high dairy prices to any significant extent, and that the quarter will still show fairly strong import demand.
But Tuffley expects to see a noticeable improvement in the deficit by the year's end, and for the number to "normalise" over the following two years.
"Whilst it is large, it is probably not causing too much concern these days because it has shown signs that it has peaked, even though we are not down a huge amount from the peak."
Westpac Institutional Bank expects the data to show a slight worsening in the shortfall to 8.6 per cent of GDP and says "serious dairy cash" will not start flowing until the end of the year.
As for the market implications, Westpac says international markets are now much more attuned to risk, and more likely to punish a high current account deficit than they were a few months ago.