NZ: Annual current account deficit widened from 2.8% to 3.1% - ANZ

New Zealand’s seasonally adjusted current account deficit was much larger than expected in Q1, coming in at $2.8bn for the quarter, explains the analysis team at ANZ.

Key Quotes

“As a percentage of GDP, the annual deficit widened from 2.8% to 3.1%. The figures are fine, but are now heading in the wrong direction.”

“While it was encouraging that external balance sheet metrics improved in the quarter as a share of GDP, in some ways today’s figures are still a reminder of the bad old “borrow and spend” days.  The economy needs to lift its savings performance and policy settings need to change to encourage it.”

“Key Points

• The unadjusted current account was in surplus in Q1 to the tune of just $244m. While that was an improvement from the December quarter’s revised $2.415bn deficit, much larger surpluses have become commonplace in the first quarter, and this result was much lower than expected. As a consequence, the annual deficit widened to 3.1% of GDP in Q1 (from 2.8% of GDP in Q4).
• In seasonally adjusted terms, the deficit came in at $2.836bn, which was significantly larger than Q4’s -$1.693bn outcome. It is the largest quarterly deficit since Q4 2008, and it breaks the trend improvement in the current account that began in 2015. 
• In terms of the components, there was a broad-based deterioration. The seasonally adjusted goods deficit widened by $404m (in large part due to strong goods imports), while the seasonally adjusted services surplus deteriorated by $180m. The investment income deficit also widened (from $2.079b to 2.639b) as a result of lower returns on New Zealand’s overseas investments and higher returns on foreigners’ investments in New Zealand.
• While the data were disappointing overall, New Zealand’s net international liability position did improve. New Zealand’s net IIP now stands at -$154.8bn (58.5% of GDP). While that was largely due to market price changes in the quarter, it is still smaller than its peak of 84.0% in March 2000, and 70.6% as at the end of 2012. As a share of GDP, net external debt fell to 54.7%. However, it did actually rise by over $700mn in absolute terms. We are not necessarily surprised by that. It reflects the fact that banks have filled a domestic funding gap with increased overseas borrowing.
• We are always a little reluctant to draw strong conclusions from balance of payments data for GDP figures (due tomorrow). There are just too many moving parts. But the biggest surprise for us today was the strength in goods imports. They were far higher than expected and suggest a larger drag from net exports (and hence a weaker GDP outturn). The uncertainty centres on whether or not this is offset by a more positive contribution from inventories.”