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Tuesday, Westpac Banking Corporation reviewed New Zealand's current account data for the second quarter and commented that despite the influence of some one-off factors, the deficit has clearly been on an improving trend over the past year.
In the second quarter, the current account deficit stood at a seasonally adjusted NZ$612 million down from the NZ$2.12 billion deficit in the previous quarter. On an unadjusted basis, the current account actually was a surplus of NZ$124 million - the first June quarter surplus in 17 years, though the surplus was largely a result of a one-off tax provision.
On an annual basis, the deficit narrowed sharply to 5.9% of the GDP in the second quarter from a revised 8.1% in the previous quarter. Westpac said that the sharp turnaround was largely a consequence of world oil prices starting to drop out from last year's spike, while the substantial revision to the first quarter annual deficit from an initial estimate of 8.5% was also a contributing factor.
The goods surplus remained unchanged in the second quarter at NZ$822 million, with weak commodity prices and a strong New Zealand dollar weighing down on exports, although the effect was offset by strong export volumes for dairy products. Imports were also down on a combination of lower prices and volumes, with estimates showing import volume down 4% for the quarter and 23% from their peak a year earlier.
The services sector recorded a smaller deficit in the second quarter, with the lucrative ski season providing some respite for tourism earnings, while on the import side, New Zealanders took fewer overseas trips and spent less on transporting goods into the country.
The investment income deficit narrowed sharply from NZ$2.78 billion to NZ$1.6 billion, largely due to a drop in income outflows. Despite the influence of some one-off factors in the second quarter, the firm noted that income outflows were softer than expected.
Westpac observed that although the deficit had narrowed, the improvement should be seen in the context of lower import demand, lower company profits and lower interest payments, all of which are consequences of an economy that has been through recession for six straight quarters. The annual deficit is forecast to fall below 5% of GDP by the end of the year, with imports and income outflows remaining at low levels for a while longer. However, with demand expected to recover next year, imports are likely to rise in tandem, the firm said.
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