Current-account gap smallest since 2004

Thursday 25th June 2009

New Zealand’s current account deficit shrank to the smallest since 2004 in the first quarter as the worst recession in 30 years crimped demand for imports and global oil prices declined.

The actual deficit contracted to $1.25 billion in the three months ended March 31, from $2.1 billion in the same quarter of 2008, according to Statistics New Zealand said. The deficit narrowed to $2.68 billion, seasonally adjusted, from $3.7 billion in the fourth quarter of 2008, the first time the quarterly gap has been below $3 billion since March 2005.

New Zealand may be in its seventh straight quarter of economic contraction and the central bank doesn’t expect growth to return until the fourth quarter, ensuring its benchmark interest rate holds at a record low.

Figures tomorrow may show GDP shrank 0.7% in the first quarter. The current account gap fell to $15.25 billion in the 12 months to March 31, from a revised $16.11 billion in the year to December 31, amounting to 8.5% of GDP. Economists had expected a gap of $15.1 billion, or 8.4% of GDP, according to a Reuters survey.

“It’s good to get an improvement in the current account, which has been of concern to the ratings agencies,” said Khoon Goh, senior markets economist at ANZ National Bank.

“Unfortunately most of the improvement came from the big collapse in imports. At some stage we need to see a sustained improvement in exports but unfortunately we’ve got weak global demand.”

The New Zealand dollar was at 63.85 US cents after figures were released, from 63.91 cents immediately before the report as released.

The current account is the broadest measure of trade and investment flows across a nation’s borders and a level above 8% of GDP highlights the vulnerability of the economy to offshore shocks.

Still, Standard & Poor’s affirmed the nation’s AA+ credit rating after the budget last month, raising the outlook to ‘stable’ from ‘negative,’ reducing the prospects of a cut any time soon.

In the year to March, the services deficit increased to $1.29 billion from $1.04 million in the 12 months through December. The balance on goods narrowed to $1.29 billion from $2.33 billion in the 12 months through December.

The deficit on investment income, which makes up about 85% of the current-account gap, narrowed to $13.4 billion from $13.6 billion. The nation’s net liabilities increased to $176.6 billion, or 98.2% of GDP as at March 31, from $167.4 billion three months earlier.

Businesswire.co.nz

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