New Zealand current account deficit narrows slightly higher than expectations in Q2

New Zealand’s current account deficit narrowed slightly more than expected in Q2; helped by historical revisions, the annual deficit fell to 2.8 percent of GDP.

The seasonally adjusted current account deficit also narrowed, printing at NZD1.6 billion, down from an NZD2.8 billion deficit in Q1. That was driven primarily by a reduction in the goods deficit (to NZD0.4 billion) as export volumes rebounded strongly, and a further lift in the balance on services surplus. The latter in fact rose to an all-time high of NZD1.3 billion, on the back of stronger international tourist spending. The investment income deficit also narrowed, in large part due to better returns on New Zealand’s (largely portfolio) investments abroad.

It is encouraging that New Zealand’s current account deficit remains contained and the net external debt position is improving.  Compared with history, the country’s external imbalances are far more contained then they typically tend to be at this point in the economic cycle. That’s reducing a source of economic vulnerability.

"We expect the current account to remain in check over the coming years. We expect a 0.7% q/q lift, although at the margin, perhaps the risks are not quite as skewed to the upside as we initially thought," ANZ Research commented in its latest report.

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