NZ: Smaller CAD leads to narrower annual deficit figure – ANZ

FXStreet (Delhi) – Philip Borkin, Senior Economist at ANZ, notes that in unadjusted terms, a slightly smaller-than-expected current account deficit of $4,749m was recorded in Q3 (consensus: -$4,861m) for NZ while the annual deficit also narrowed to $8.1bn or 3.3% of GDP.

Key Quotes

“In seasonally adjusted terms, the deficit fell to $1,715m ($332m smaller than in Q2). All the major components contributed to this improvement, although it was dominated by a further increase in the services balance on the back of tourism sector strength. At over $1bn, this is the largest services surplus since Q2 2004. More modest movements were experienced in the goods and income balances, with the latter showing both income earned from foreign investment in New Zealand and New Zealand’s investment abroad decreasing slightly.”

“The starting point for the current account is hardly alarming; it compares favourably to its historical average (-3.7% of GDP). Moreover, the support from the tourism sector is notable and should continue. It also means the outlook for the current account deficit is perhaps not as bad as it was shaping to be earlier this year. Nevertheless, we still forecast it to widen over the course of 2016 on a further deterioration in the goods balance.”
“As such, the continued shortfall of national saving relative to our investment needs highlights an area of structural weakness in the New Zealand economy. A current account deficit (notwithstanding a better starting point) still leaves the economy at the whims of global financial market sentiment.”

“But it is important to also acknowledge some offset to this vulnerability from a stronger external balance sheet. Net external debt, at 56.1% of GDP, continues to fall and is historically low. The maturity profile of gross international liabilities has also lengthened considerably, highlighting reduced liquidity risk, particularly compared with the pre-crisis period.”

“Given the number of moving parts, it is always difficult to imply too much from this data about the GDP figures due for release tomorrow. However, a stronger than expected services balance suggests some upside risk to our 0.8% pick for Q3 GDP.”

Philip Borkin, Senior Economist at ANZ, notes that in unadjusted terms, a slightly smaller-than-expected current account deficit of $4,749m was recorded in Q3 (consensus: -$4,861m) for NZ while the annual deficit also narrowed to $8.1bn or 3.3% of GDP.

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