New Zealand Current Account Deficit Widens on Imports

By Tracy Withers

Dec. 22 (Bloomberg) -- New Zealand’s current account deficit widened to a record in the year through September as higher fuel prices and the weakening currency increased the cost of imports.

The deficit expanded to NZ$15.51 billion ($8.9 billion) in the 12 months ended Sept. 30 from a revised NZ$14.98 billion in the year through June 30, Statistics New Zealand said in Wellington today.

As import costs climb, prices for milk, butter and other commodities that New Zealand exports are declining amid the deepening global slowdown. A report tomorrow is expected to show the economy contracted for a third straight quarter, extending the nation’s first recession in a decade, as overseas shipments fell and household spending faltered.

“The deficit is big, it has deteriorated and it’s set to worsen,” said Khoon Goh, a senior economist at ANZ National Bank Ltd. in Wellington. “The world economy is slowing and there is going to be a fall in export receipts.”

The economy shrank 0.5 percent in third quarter from the previous three months, according to a Bloomberg News survey of 13 economists. The report is due for release at 10:45 a.m. in Wellington tomorrow.

New Zealand’s dollar bought 57.48 U.S. cents at 11:45 a.m. in Wellington from 57.47 cents before the report was released. The currency has declined 26 percent this year against the U.S. dollar. The three-year government bond yield was unchanged at 4.53 percent.

Currency Risk

A deficit represents money New Zealand has to borrow overseas to pay for the goods and services it imports, and to finance investment not covered by local savings. A wider deficit makes New Zealand more reliant on foreign funding.

“The data highlight New Zealand’s structurally large current account deficit and its dependence upon offshore financing,” said Su-Lin Ong, a senior economist at RBC Capital Markets in Sydney. “As yields continue to fall, the risk is that the New Zealand dollar will need to adjust lower to attract the necessary offshore capital.”

New Zealand’s annual current account deficit increased to 8.6 percent of gross domestic product from 8.4 percent in the year through June. That was in line with a median estimate of 8.7 percent in a Bloomberg News survey of economists.

By comparison, Australia’s current account deficit was 5.4 percent of GDP at Sept. 30. The third-quarter shortfall in the U.S. was 4.8 percent of GDP.

Imports, Exports

“The deficit will probably reach 9 percent before starting to narrow in the second half of next year,” ANZ’s Goh said. “Falling oil prices will help, but that’s being offset by lower prices for our commodity exports.”

The trade deficit widened to NZ$2.26 billion in the 12 months to September from NZ$1.85 billion in the year through June, today’s report showed.

Imports gained 2.4 percent from a year earlier as soaring crude oil prices boosted the cost of fuel purchases. In the third quarter, import prices had their largest increase in 24 years, the statistics agency said.

“Imports have blown out while exports have remained flat,” said Stephen Walters, chief economist at JPMorgan Chase & Co. in Sydney. “Imports are more expensive, on the back of the weaker currency.”

Exports rose from a year earlier but fell from the second quarter, following a seasonal pattern. The third-quarter trade deficit was the widest in three years.

Quarterly Deficit

Economists prefer to watch a rolling annual current account balance because of volatility in the quarterly readings.

In the three months ended Sept. 30, New Zealand current account deficit widened to NZ$5.99 billion from NZ$3.93 billion in the second quarter and NZ$5.47 billion a year earlier. Economists forecast a NZ$6 billion quarterly shortfall.

The annual deficit on investment income, which makes up most of the current account, narrowed to NZ$13.66 billion from a record NZ$13.86 billion in the year through June.

Foreign investors earned less from their local subsidiaries and their holdings of stocks and bonds. Income earned by New Zealanders investing offshore increased.

The services deficit widened in the year ended Sept. 30 amid a seasonal decline in tourists.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.