Falling dairy export prices have been the largest contributor to New Zealand's annual current account deficit widening to 3.3% of gross domestic product (GDP), for the year to December. Analysts are expecting the deficit to widen further, to as much as 5.5% within 18 months.
The deficit in the current account balance, which measures New Zealand trade flows and investment returns, widened from $2.4 billion in the quarter to September, to $2.6 billion for the quarter to December.
The annual deficit grew from $6.1 billion, or 2.6% of GDP, for the year to September, to $7.8 billion, or 3.3% of GDP, for the year to December, Statistics New Zealand data showed yesterday.
Westpac senior economist Michael Gordon said the widening of the annual gap to 3.3% was in line with expectations, and largely due to the decline in dairy export prices last year. A year earlier they were at near-record highs.
''On an annual basis, there is no doubt that the current account deficit will widen further over the course of the year. However, we expect it to narrow again in 2016,'' Mr Gordon said.
ASB senior economist Jane Turner expected the deficit widening to continue also, but to ''settle'' at about 5.5% of GDP by late 2016.
''Strong domestic demand will see import demand continue to run ahead of export incomes, even once dairy prices recover over the second half of 2015,'' she said. Meanwhile, New Zealand's relatively strong economic performance, compared with other major global economies, would also result in New Zealand's investment income deficit continuing to widen.
''We see the current account deficit settling around 5.5% in late 2016,'' Ms Turner said.
SNZ's international statistics manager Jason Attewell said most of the quarterly increase in profits, earned by foreign-owned companies in New Zealand, was reinvested back into the company. Companies were also able to pay bigger dividends to their overseas portfolio shareholders for the quarter, reflecting recent growth in the New Zealand economy.
''This activity resulted in an increased income deficit, which was partly offset by increased spending by overseas visitors to New Zealand during the quarter,'' Mr Attewell said.
The number of overseas visitors to New Zealand was up 5.4% from the previous September quarter and spending by those visitors rose 14.1% to $2.82 billion.
