NZ: Q2 current account firmer than expected - Westpac

New Zealand’s current account deficit narrowed to 2.8% of GDP in the year to June, following a revised deficit of 2.9% last quarter, notes Satish Ranchhod, Senior Economist at Westpac.

Key Quotes

“The result was stronger than the average market forecast for a deficit of 3.1%, which was also our own forecast.”

“The improved current account deficit was mainly due to rises in both goods and services exports.”

“While today’s data were a little stronger than expected, they have only limited implications for tomorrow’s GDP report (we’re forecasting a 0.8% gain over the quarter). Both exports and imports were close to expectations.”

“Details

• Adjusting for normal seasonally variation, the June quarter recorded a current account deficit of $1.6bn. That was a marked improvement from last quarter’s deficit of $2.8bn. Underlying the improvement in New Zealand’s trade position was a rebound in goods exports. This followed weather related disruptions in recent quarters that affected some of our key agricultural exports, including dairy. We also saw a strong lift in services exports over the quarter. This was mainly related to very strong tourist spending over the quarter on the back of some high profile sporting events (the Lions tour and Master games). These strong gains in exports more than offset modest increase in imports.
• The investment income deficit narrowed to $1.9 bil in the June quarter. This was largely due to higher returns on New Zealanders’ offshore investments. Earnings by overseas-owned firms in New Zealand were down a little in the June quarter. However, this followed a solid lift in March, and still points to fairly positive business conditions in New Zealand.
• In nominal terms, New Zealand’s net foreign liabilities did increase in June, mainly due to changes in equity prices. However, net foreign liabilities have been steadily declining relative to GDP for most of the past decade. This trend continued in the June quarter, with our net liability position reaching a multi decade low of 57.5% of GDP (vs. 57.8% last quarter).”

“Outlook

Looking ahead, we expect the current account balance will remain around current levels for the remainder of this year. While goods exports are likely to continue rising, services exports are likely to ease next quarter as tourism flows normalise. At the same time, the slowing housing market and softening domestic demand are likely to dampen imports.”