Narrowing NZ current account deficit doesn’t reflect strength of the domestic economy

Data released earlier on Wednesday showed that New Zealand’s current account deficit remains remarkably well contained narrowing to 3.1% of GDP in the year to December 2015, against market expectations that it would hold steady at 3.3%.

Details however showed that headline result was driven by a sharp drop in the outflow of profits from overseas-owned firms in New Zealand. Both the goods and services trade balances narrowed and it doesn’t reflect well on the strength of the domestic economy. The goods trade deficit widened to $810m, the worst quarterly result since 2008, while surplus on services fell slightly to $977m, the first decline in two years.

"The details of today’s release have no implications for our forecast of December quarter GDP, which will be published tomorrow. We expect a 0.7% increase for the quarter, following a 0.9% gain in the September quarter," said Westpac's research in a report.