Current account deficit draws fire

The annual current account deficit, at 4.9% of gross domestic product, was smaller than market forecasts but provided another opening for Opposition politicians keen to attack the Government on the high value of the New Zealand dollar.

The unadjusted June quarter deficit of $1.8 billion was slightly larger than the $1.6 billion expected by the market. The annual deficit for June was $10.1 billion, up from $9 billion in the March year and $7.4 billion in June 2011.

ASB economist Jane Turner said the March quarter was revised to a smaller deficit, leaving the overall annual deficit lower.

"We do expect the deficit will widen further over the next year to 6.5% of GDP."

The recent fall in commodity prices was starting to work its way through the trade balance and ongoing recovery in the economy would lift the outflow of investment income, she said.

Heading into 2014, she expected goods and services trade to strengthen and start reducing the deficit.

A wider deficit in the coming year would highlight New Zealand's vulnerability to external financing, although a gradual rebalancing of the economy was taking place, Ms Turner said.

The private sector - through the financial system - was gradually reducing its net foreign debt. The Government was still increasing its use of foreign debt, but that would change in the long term, once budget surpluses were restored.

"We don't expect rating agencies to be any more worried about New Zealand's vulnerabilities after the current account release," she said.

Statistics New Zealand figures showed that outstanding earthquake reinsurance claims still masked the extent of the country's net debt position. External earthquake reinsurance claims had been revised up by $2.2 billion to a total of $17.9 billion. Of those claims, $12.8 billion was yet to be settled. Excluding outstanding reinsurance claims, New Zealand's net debt position would be 78.9% of GDP compared with the reported figure of 72.6%.

Labour finance spokesman David Parker said bold new ideas were needed to ensure New Zealand paid its way in the world.

"Our current account deficit is a symbol of our inability to sell enough exports to cover the costs of our imports and interest. We see the ramifications echoing through the economy in the form of job losses across major industries. New Zealand needs to earn more by selling overseas but this Government doesn't have the ideas ... to make that happen."

Labour would increase savings through universal KiwiSaver and ensure those funds were invested in high-growth exporting companies through reforms such as a capital gains tax, he said.

The Reserve Bank would be required to consider the exchange rate and other important aspects of the economy instead of inflation trumping exports. That would make the currency more competitive and stable, he said.

New Zealand First leader Winston Peters said the seasonally adjusted June quarter deficit of $2.9 billion was being fuelled by foreign investment.

"We as a country are earning less overseas than what foreign investors earn by speculating on our dollar. Our economy is paying a heavy price."

At a glance
The balance of payments is a record that summarises all of New Zealand's transactions with the rest of the world. It is made up of the current account and the capital account. By definition, the respective balances on the current and capital account are equal, but with an opposite sign. This means that if a country has a current account deficit - which New Zealand does - then it is spending more than it earns and is borrowing abroad or attracting investment money to finance this spending.


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