Diary and oil exports have underpinned a reduction in New Zealand's record balance of payments deficit, with Statistics New Zealand reporting the deficit for the year to December fell from $14.3 billion in the year to September, to $13.8 billion, with the likelihood it will continue
to shrink.
Westpac markets economist Sharon Zollner said the high international prices for dairy products and oil exports from the offshore Taranaki Tui field accounted for the shrinking deficit.
"The dairy boost is coming off its high [prices], but we expect this to be long-lived, with prices still settling above historic highs,'' Mrs Zollner said yesterday.
The balance of payments measures all New Zealand's transactions with other countries, including interest payments and investments, and the deficit reflects the economy's demand for resources is exceeding its domestic supply.
Mrs Zollner said the boost from Tui was "nicely-timed'', helping to retrace some of NZ's record deficit, but Mrs Zollner cautioned the field's export contributions were a relative "flash in the pan'' as there were at present expectations of only about two years' production.
She noted that relying on dairying, "having all the eggs in one basket'', meant the economy was vulnerable to a downturn in the dairy sector.
"There are environmental costs associated with the dairy gold rush,'' Mrs Zollner said.
Other headwinds affecting dairy reliance included the increasing dairy production output from the United States, South America and eastern European countries, and while Asia also had scope to increase production, its demand for imported milk products was increasing.
She forecast that for the first quarter this year, to March, the balance of payments deficit would continue to shrink.
However, she added, the full effects of the drought around New Zealand had to be accounted for during this period.
The worldwide credit crunch would also affect the balance of payments positively as consumers found it more expensive to borrow money and would therefore borrow and spend less and require fewer imported goods.
Yesterday's balance of payments report was expected to bode well for today's gross domestic product data due out for the same quarter, with stronger-than-expected growth of 0.9% and 3.5% for the year to December, Westpac has predicted.
The seasonally-adjusted goods surplus of $85 million was up from a $732 million deficit last quarter - the first quarterly goods surplus for five years, NZPA reported.
Exports increased by 20% from the September quarter, mostly due to the first full quarter of oil production from Tui.
Goods imports were up nearly $1 billion, or 10%, with petrol the main contributor.
The travel surplus dropped by 10.6% with fewer foreign tourists, resulting in lower earnings for tourism. However, more New Zealanders holidayed overseas, taking advantage of the strong New Zealand dollar. The quarter included the Rugby World Cup in France in October.
Larger investment income was fuelled by increased interest on overseas debt and dividends payable to overseas investors.
