24 Jun 2010

Deficit drops to 20-year low but likely to rise again

4:56 pm on 24 June 2010

The country's current account deficit has fallen to its lowest in more than 20 years, mainly because of higher commodity prices and a drop in investment income.

But it's not expected to stay there. ANZ economist Khoon Goh says the turnaround in the deficit is coming to an end, and Finance Minister Bill English told Parliament on Wednesday that he expected it to worsen in coming months.

The deficit - a measure of payments to foreigners minus earnings paid from overseas to New Zealanders - was $4.46 billion for the year to March, or 2.4% percent of gross domestic product (GDP).

That's better than the market was expecting: the consensus among economists had been that the deficit would come down to just over $5 billion.

Statistics New Zealand says the lower deficit - $5.3 billion less than in the previous quarter - is attributable to a slump in imports and a drop in the profits paid to overseas owners of local companies.

Earnings from sales overseas also picked up in the March quarter: for the first time in more than a year, returns from exports rose, largely because of higher commodity prices.

Deutsche Bank chief economist Darren Gibbs says the deficit is likely to see-saw over the next two years.