New Zealand’s current account deficit narrows in Q2

New Zealand’s current account deficit narrowed in the second quarter; however, it unexpectedly widened in seasonally adjusted terms due to stronger-than-anticipated imports. The unadjusted current account deficit narrowed to NZD 945 million in the second quarter. This was significantly larger than consensus projections of NZD 295 million. However, the annual deficit narrowed moderately to NZD 7.4 billion or 2.9 percent of the GDP, as compared with the upwardly revised 3.1 percent in the first quarter.

On a seasonally adjusted basis, current account deficit of the country widened by NZD 187 million to NZD 1,826 million, owing to a deterioration in the services surplus  that declined by NZD 144 million. This was mostly due record spending by New Zealanders travelling abroad. This countered a rebound in the goods deficit, which narrowed to NZD 452 million, although goods deficit did not narrow as much as was expected because of stronger-than-expected goods import values.

Income deficit broadened modestly to NZD 2,040 million, mainly due to increased income earned by foreigners on their New Zealand direct investment, noted ANZ in a research note. Certain external balance sheet metrics also dropped modestly in the second quarter. Net international liabilities increased to NZD 163.3 billion or 64.9 percent of GDP, predominantly due to market price changes. Meanwhile, net external debt increased to NZD 141.6 billion.

While this starts to reverse some of the improvement, these measures continue to be at much better levels than that was seen in the lead-up to the Global Financial Crisis. Meanwhile, although the financial account indicated a balance of NZD 1.5 billion, there was a net inflow of NZD 5.1 billion in portfolio investment from offshore, mainly into debt securities. This is in line with anecdotes of solid foreign interest in the bond market and assists in underpinning arguments that yield has been a main source of support for NZD strength, added ANZ.