20 Jun 2013

Economist expects deficit to widen again soon

7:08 am on 20 June 2013

New Zealand's annual current account deficit narrowed in the March quarter but an economist expects it will soon widen again.

The annual deficit fell to 4.8% of gross domestic product in the 12 months ended March compared with 5% in December.

First NZ Capital economist Chris Green said growth in the economy will push the deficit higher.

He said some of the deterioration is reflected in a better growth profile and as a consequence of that an increase in investment expenditure.

If the deficit continues to drift out to the 5.5% level, Mr Green said it's probably not enough to 'spook investors'.

But he said it could be more of a risk if there is an increase in the deficit to around 6%, as the Reserve Bank predicts will happen by March 2015.

But Mr Green said at this point investors are more likely to focus on the positive growth dynamics of the New Zealand economy relative to a number of other economies.

In the three months ended March, increased spending by tourists and higher exports of dairy products helped narrow New Zealand's current account deficit to $2.2 billion, $330 million less than in the December quarter.

Dairy export volumes rose in the quarter but prices also rose for the first time in nearly two years.