New Zealand’s current account deficit widened sharply from the previous quarter in the three months to Sept. 30, and the likelihood that offshore pressures will weigh further on the country’s all-important export sector are increasing.
Statistics New Zealand said Wednesday that the current account deficit totaled NZ$4.6 billion in the three months to Sept. 30. That compares with a revised deficit of NZ$844 million in the second quarter and is wider than the median forecast for a deficit of NZ$3.8 billion in a Dow Jones Newswires poll of 11 economists.
The widening deficit was blamed on a fall in dairy, meat and forestry prices and the impact on the goods balance.
The wider quarterly current account deficit will be a cause for concern given New Zealand’s dependency on international trade and overseas borrowing, and given the gloomy global economic backdrop highlighted by the merchandise trade balance swinging to a deficit of NZ$752 million in the third quarter from a NZ$2.4 billion surplus the previous quarter.
Some of the move is being put down to the strength of the New Zealand dollar against the U.S. dollar during the quarter, but weaker commodity prices have also undoubtedly contributed.
“While dairy and meat prices have held up relatively well for now, there has already been some softening in demand for some of the more growth-sensitive export commodities,” ASB Economist Jane Turner said in a report. “The current crisis poses some downside risk to the outlook for the goods balance if trading partner growth, particularly in Asia, slows further.”
Economists also see growing weakness in the services balance as the boost from the Rugby World Cup, held in September and October, wanes and the tourism sector deteriorates.
Statistics New Zealand data also showed the country’s net international debtor position–the focus for international ratings agencies–had increased to NZ$148.21 billion as of Sept. 30, compared with a revised net international liability of NZ$138.4 billion June 30.
The modest widening in New Zealand’s net international investment position once again highlights “the long-standing vulnerability for the NZ economy and the unlikelihood of a credit rating upgrade any time soon in our eyes,” Goldman Sachs Economist Philip Borkin said in a note.
But while the data highlighted some concerns, the bureau said the annual deficit was equivalent to 4.3% of GDP, well below a peak of 8.9% in the fourth quarter of 2008.
EasyForexNews Research Team