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UPDATE 1-NZ current account deficit narrows slightly in Q3
December 18, 2012 / 11:16 PM / in 5 years

UPDATE 1-NZ current account deficit narrows slightly in Q3

(Adds detail, comment, market reaction)
    * NZ current account deficit 4.7 pct of GDP from revised 4.8
pct
    * Deficit eases from three-year high
    * Deficit poised to widen more as economy picks up
    * NZ dollar, debt unmoved

    WELLINGTON, Dec 19 (Reuters) - New Zealand's annual current
account deficit narrowed slightly from a three-year high in the
September quarter as foreigners earned less on their
investments, but the gap is expected to widen again in coming
quarters as the trade surplus falls.
    The deficit for the year to Sept 30 was NZ$9.89 billion
($8.3 billion), equating to 4.7 percent of GDP, against market
expectations of 4.8 percent of GDP, data showed on Wednesday.
    That compared with a downwardly revised deficit of 4.8
percent of GDP in the previous quarter.
    The deficit, which hit a 21-year low of 1.9 percent of GDP
in early 2010 in the aftermath of the global financial crisis,
is seen getting worse as the rebuilding of Christchurch from
earthquake damage drives import demand, and as an improving
economy is expected to boost foreign investors' earnings.
    The trade deficit has also been affected by lower commodity
prices.
    "We think it will get through 6 percent of GDP, and if that
turns out to be the case the question will be whether markets
will be as sanguine around the external position of the country
as they appear to be at the moment," said Bank of New Zealand
economist Doug Steel.
    The New Zealand dollar was unmoved at around $0.8415,
while interest rate futures <0#NBB:> were unchanged.
    The data did not change expectations the central bank would
keep its cash rate at a record low of 2.5 percent for an
extended period due to subdued inflation, a high local dollar
and an uncertain global outlook.
    
    The investment deficit - the gap between earnings for
foreign investors in New Zealand and the country's foreign
investments - declined slightly in the September quarter as
foreign-owned banks earned lower profits from local operations.
    The banking sector is dominated by the big four Australian
banks, and has been a major factor in the country's deficit.
    The data also showed a lower trade surplus as imports rose.
    The capital account posted a deficit of NZ$547 million,
narrowing from NZ$582 million three months earlier. It peaked at
a surplus of NZ$17 billion in the June quarter last year on
inflows of insurance payments after the Christchurch earthquake.
    New Zealand relies on foreign borrowing to fund spending
because of a low domestic savings, with household debt exceeding
100 percent of disposable income since 2001.
    The country's net foreign liabilities, measured by
international investment positions, rose to 71.2 percent of GDP
from downwardly revised 71 percent in the previous quarter.
    Ratings agencies have voiced concerns about New Zealand's
high foreign debt, although Standard & Poor's and Fitch Ratings
earlier this year reaffirmed their AA sovereign ratings.
 ($1=NZ$1.19)    

 (Reporting by Mantik Kusjanto; Editing by John Mair)

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