National debt hits $33,000 a head

The ongoing spend-up on imported goods at the same time as exporters have grappled with the high currency continued to drive the country deeper into debt with the rest of the world during the September quarter.

The current account, the measure of the country's transactions in goods, services and investments with the rest of the world, worsened to $12.9 billion in the year to September, or 8.5 per cent of GDP. That was up from $12.1 billion or 8.1 per cent of GDP for the June year.

Yesterday's figure takes the international investment position - the accumulated effect of past deficits - to a total of $134.57 billion.

This is equivalent to a debt of nearly $33,000 for every man, woman and child. A year ago that figure was more like $29,000.

The data was "even worse than we all expected", said ANZ chief economist John McDermott.

McDermott, who has warned the current account deficit as a proportion of GDP may go as high as 10 per cent, said yesterday's data pointed towards an even gloomier outlook.

"Looking forward, things really haven't improved much. It could be even worse still the next time we get a number out."

For the three months to September, the current account, also known as the balance of payments, was a deficit of $5.07 billion. Statistics New Zealand said the wider quarterly deficit resulted mainly from an increase in goods imports. The goods balance was a deficit of $2.15 billion for the quarter.

Exports were constrained by the strength of the dollar while imports were boosted substantially by high world oil prices. Statistics NZ said although export prices were up, that was offset by lower volumes, particularly in dairy exports.

Despite a boost to tourism earnings on an influx of short-term visitors associated with the Lions rugby tour, the services deficit for the three months at $522 million was the largest in five years.

The investment income balance, which has previously been a major driver of the growing current account deficit - largely on profits and dividends paid to foreign investors - was $2.55 billion for the quarter, slightly down on the previous period.

Deutsche Bank senior economist Darren Gibbs said: "It appears that foreigners are starting to make smaller profits on their investments in New Zealand which clearly ties in with the idea that we're seeing a squeeze on profitability in the corporate sector."

Gibbs believed the current account deficit would top out at about 9 per cent of GDP, probably over the next six to nine months.

"Then if we get this weakening in the economy that we're anticipating next year, I think we'll start to see the current account deficit move down through the second half of next year."

By 2007, he expects it to be below 8 per cent - "which is still enormous" - on the basis of forecasts of a weaker kiwi dollar.