Current account blows out again in September

New Zealand's current account deficit swelled to a worse-than-expected $5.07 billion in the September quarter as high oil prices and increased borrowing from overseas by the corporate sector weighed on the economy.

The current account, also known as the balance of payments, measures all of New Zealand's transactions with the outside world.

The annual deficit for the year to September was a massive $12.9 billion, or 8.5 per cent of GDP. Today's result was worse than feared by local economists, who had expected a quarterly deficit of $4.84 billion, with an annual figure of $12.6 billion, or 8.3 per cent of GDP.

The Reserve Bank earlier this month forecast the current account would peak at 9.25 per cent of GDP by the end of next year, as consumers' strong demand for imports, coupled with the rising cost of oil and weak exports, created huge external imbalances.

The September quarter deficit compared with a revised $2.80 billion deficit in the June quarter.

At over 8 per cent of GDP, the current account balance was in its worst state since the 1980s. The September quarter deficit was due largely to a reduction in New Zealand's overseas assets. New Zealand investors withdrew $4.5 billion of New Zealand investment abroad in the quarter, while foreign investment into New Zealand in the September quarter was worth $1.3 billion.

The main driver was a reduction in overseas assets, mostly loans and deposits, by the banking sector.

New Zealand corporates also reduced their investments in overseas subsidiaries. New Zealand's net international debt rose by $5.1 billion during the quarter to $107.3 billion.

On a seasonally-adjusted basis, the quarterly deficit was $3.81 billion.

That was $701 million larger than the previous quarter, and resulted mainly from an increase in goods imports.

Falling goods exports also contributed.

Rising world prices for petroleum and petroleum products were the most significant contributors to the increase in import prices during the quarter. Export prices also rose, but were offset by a decrease in volumes, particularly for dairy products.
The New Zealand dollar fell to US$68.14 from US$68.25 just before the data was released.


The yield on government bonds was unchanged.


Goldman Sachs JBWere economist Shamubeel Eaqub told Reuters the annual deficit of 8-1/2 per cent of GDP was an "absolute shocker".


"It wasn't unexpected but certainly the magnitude was bigger than anticipated. I guess what's worrying is the outlook."


He added that the eventual correction of the deficit - "which must happen because the current account is unsustainable" - will be very sharp and painful.


However, Jason Wong, an economist for First NZ Capital, said the deficit was "no big deal".


"No-one should have any problems with it, it's within the usual forecasting error bounds," he added.


- NZPA