Business World

New Zealand's annual current account deficit narrowed less than economists forecast in the year ended March as payments to foreign investors accelerated, countering a gain in butter and cheese exports.

The gap shrank to NZ$13.79 billion ($10.5 billion) in the 12 months ended March 31 from NZ$13.84 billion in the year through December, Statistics New Zealand said in Wellington today. The median estimate of 12 economists surveyed by Bloomberg News was for a NZ$13.32 billion shortfall.

Prices for dairy products, which make up a fifth of New Zealand's exports, rose 20 percent in the first three months of the year, helping the annual trade deficit narrow to the lowest in almost four years. Economists say the rising cost of imported oil and falling farm production because of a drought may boost the deficit this year, increasing foreign debt.

“In a world of lower risk appetite, New Zealand's current account balance remains uncomfortably high,'' said Jason Wong, director of strategy and research at First NZ Capital Group in Wellington. “The large deficit will continue to remain a source of downward pressure for the currency for some time yet.''

New Zealand's dollar fell to 75.66 U.S. cents at 11:45 a.m. in Wellington from 75.92 cents immediately before the report.

Broadest Measure

The annual deficit narrowed to 7.8 percent of gross domestic product from 7.9 percent in the year through December, the statistics agency said. Economists expected a shortfall equivalent to 7.5 percent of GDP.

By comparison, Australia's current account deficit was 6.5 percent of GDP at March 31.

The Reserve Bank of New Zealand this month forecast the deficit would be 7.6 percent of GDP in the year ended March. It says the gap will widen to 9.4 percent by March 2009.

The current account is the broadest measure of trade because it incorporates tourism and investment income. A large deficit needs to funded by borrowing from overseas, which could cause the nation's currency to fall payday loans application.

The trade deficit narrowed to NZ$1.75 billion in the 12 months March 31 from NZ$2.39 billion in the year through December, today's report showed. That's the smallest gap since the year ended June 30, 2004.

Dairy Exports

First-quarter merchandise exports gained 20 percent from a year earlier and imports rose 12 percent. Dairy exports rose because of higher prices, the statistics agency said. Imports jumped as soaring crude oil prices increased the value of fuel purchases.

While the trade gap narrowed, the deficit on investment income, which makes up most of the current account, widened and the surplus on services, which includes spending by overseas visitors, shrank.

The deficit on investment income widened amid increased payments to foreign owners of assets such as the Tui oil field, which began production in July. Tui is 42 percent owned by Sydney-based Australian Worldwide Exploration Ltd. and 35 percent owned by Japan's Mitsui & Co. Foreign investors owned 77 percent of New Zealand government bonds on issue at May 31.

The annual deficit on investment income widened to a record NZ$13.12 billion from NZ$12.44 billion in the year through December. Foreign investors earned more from their local subsidiaries and their holdings of stocks and bonds, outpacing income earned by New Zealanders investing offshore.

About 90 percent of profits earnings by foreigners were paid overseas rather than reinvested in New Zealand, compared with 64 percent in the year to March 2007, the agency said.

Economists prefer to watch a rolling annual current account balance than the quarterly deficit, which can be volatile.

In the three months ended March 31, the current account deficit narrowed to NZ$2.16 billion from NZ$2.21 billion a year earlier. Economists forecast a NZ$1.7 billion gap.

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