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Current account returns to deficit

Wednesday 22nd September 2010

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New Zealand’s current-account balance turned to a deficit in the second quarter, though the composition suggests some positive momentum for the economy.

The deficit was $880 million in the three months ended June 30, from a revised surplus of $159 million in the first quarter, according to Statistics New Zealand. The gap amounted to 3% of gross domestic product, up from 2.4% in the first quarter. Economists had forecast a quarterly deficit of $500 million, or 2.8% of GDP, according to Reuters.

While the balance of payment figures were worse than expected, they highlight some positive trends for the New Zealand economy, with foreigners reaping bigger profits from their local investments, while strong global commodity prices helped drive exports growth more than imports. At 3% of GDP, the deficit is still lower than the quarterly average in any year since 2001.

The data may also bode well for second-quarter GDP, due out tomorrow, which is expected to show the economy expanded 0.8%, up from a 0.6% pace in the first three months of the year.

“As the economic recovery continues to gain traction, we expect that the current account deficit will continue to widen, mostly driven by an increase in the income deficit,” said Jane Turner, economist at ASB.

Still, she said, the underlying dynamics “are likely to be interrupted over the next few quarters as a result of the Canterbury earthquake”.

That may see the current account gap narrow in the short term, due to transfers from insurance payouts, she said.

The annual deficit widened to $5.6 billion from $4.46 billion in the 12 months to March 31.

The annual trade surplus widened to $3.25 billion from $2.6 billion three months earlier. The annual income deficit expanded to $9.1 billion from $7.8 billion.

International liabilities at $312 billion, were about twice the $145 billion of international assets, for a gap of $166.98 billion, or 90.7% of GDP.

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