NZ posts smallest annual current account deficit in six years on weaker profits

Tuesday 22nd December 2009

New Zealand posted the smallest annual current account deficit in six years as the weak domestic economy trimmed profits at foreign-owned companies and sapped demand for imports.

The deficit shrank to $5.72 billion in the 12 months ended Sept. 30, according to Statistics New Zealand. That’s down from the $10.37 billion gap in the year to June and down from $15.4 billion in the 12 months through September 2008. Economists had expected a deficit of $7.2 billion, according to a Reuters survey.The current account shortfall narrowed to 3.1% of gross domestic product from 5.6% for the June year.

“The deficit is improving but for all the wrong reasons,” said Michael Gordon, markets economist at Westpac Banking Corp. “Lower profit for overseas-owned firms is a lagged response to the downturn. Once the recovery becomes entrenched that will reverse.”

Investors will know tomorrow whether the economic recovery is building momentum, with the release of third-quarter GDP, which is expected to show the economy grew 0.3% after emerging from recession three months earlier with growth of 0.1%.

The kiwi dollar dipped to 70.40 U.S. cents after the report today from 70.51 cents immediately before.The decrease in the annual gap reflected “unusually large” company tax transactions, mainly due to tax provisions by banks, Statistics New Zealand said.

Profits earned by foreign-owned firms in New Zealand fell by $4.3 billion.The annual balance on goods and services turned a surplus of $2.28 billion from a year-earlier deficit of $2.3 billion, mainly reflecting a $4.87 billion tumble in imports while exports fell only$261 million.

The Reserve Bank, which estimates the economy grew 0.4% in the third quarter, this month forecast the current-account deficit will widen back out to 5.3% of GDP by the end of next year.The annual deficit on investment income contracted to $7.98 billion from $10.79 billion three months earlier.

Net debt, or liabilities exceeding assets, increased to $173.31 billion as at Sept. 30, from $171.8 billion three months earlier.

Businesswire.co.nz

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