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NZ current-account gap widens as cost of imports rise

By Paul McBeth

Monday 22nd December 2008

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New Zealand's current account deficit widened to $15.5 billion in the year ended September 30 as the kiwi dollar fell and crude oil rose, driving up import costs.

The deficit widened from a revised $14.98 billion in the 12 months ended June 30, according to Statistics New Zealand. The deficit expanded to 8.6% of gross domestic product from 8.4%, which may undermine the nation's AA+ credit rating as the economy contracts and global growth falters.

"The data was not good, with an internationally high current account deficit and debt level, at an unusually difficult time to fund and refinance such positions," said Robin Clements, chief economist at UBS New Zealand. "This continues to represent a material downside risk for the exchange rate."

The gap between exported goods and imported goods rose by $418 million year-on-year, while the gap for services rose by $333 million. The overall deficit rose 9.6% to $5.99 billion from $5.47 billion last September.

Khoon Goh, senior markets economist at ANZ National Bank, said the yawning deficit may draw more attention in coming months, with the prospect that the gap "will probably get close to 9% of GDP early next year."

New Zealand's economy probably shrank 0.5% in the third quarter, extending the nation's first recession since 1998. Goh predicts the slump will extend into next year, with a contraction of 1% over the 2009 calendar year.

"The current account adjustment should see weaker domestic demand and trim back the currency," said. "We should see weaker growth in the New Zealand economy."

The New Zealand dollar has dropped 24% against the US dollar in the past six months and traded recently at 57.53 US cents.

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