An economist says New Zealand's highly likely to be subject to a credit rating downgrade in coming years, as the current account deficit continues to widen.
The deficit is already coming under pressure, widening from 3.7% of GDP to 4.8% in the year to the end of March, as export prices fell and imports increased.
BNZ head of research Stephen Toplis expects the deficit to continue to grow as the economic recovery and rebuilding of Christchurch take hold and stimulate imports even further.
He expects the deficit to reach 7% of GDP by the end of the year, then continue to climb, to peak at 8.3% of GDP by the end of next year.
Mr Toplis says that's disconcertingly high, and could prompt rating agencies and international investors to take a much less favourable view of the economy.
"It's highly likely that we will get downgraded at some point in the next couple of years because I do think the current account balance will continue to deteriorate. The question is whether New Zealand's deterioration looks any worse than what's going on in the rest of the world".
He says the credit rating agencies will be looking at the composition of both the current account balance and the Government balance.
Mr Toplis says ideally a country has current account surpluses and fiscal surpluses, but New Zealand has neither at the moment.
He says it makes the Government's attempts to return to a surplus even more important "because if you're staring down the barrel of fiscal deficits and current account deficits then rating agencies definitely don't like you".
ASB chief economist Nick Tuffley also expects the current account deficit to continue to widen, but predicts it will peak at about 6.5% of GDP in the middle of next year - which might be a bit more palatable to ratings agencies.
He says the recent indications from ratings agencies are that they are fairly comfortable with New Zealand.
Mr Tuffley says an example of this is comments they made after the Budget in which they suggested the Government would have a bit of head room in a crisis to delay getting back into fiscal surplus, without that putting pressure on the ratings.