However, the economic celebrations are tinged with a warning.
The big improvement in New Zealand's external position was mainly due to a weak economy and one-off tax provisions, as opposed to export strength.
ANZ-National Bank chief economist Cameron Bagrie said in that regard, while the sharp turnaround in the deficit was welcome and would help allay credit rating agencies' concerns about New Zealand indebtedness, the improvement did not have a sustainable look to it.
"Import capitulation in the face of weak domestic demand and lower profits by foreign-owned firms are behind the current account deficit reduction."
Tax adjustments by foreign-owned banks also helped the improvement with $1.37 billion being recorded in the September quarter following the $661 million adjustment in the June quarter.
Excluding the tax transactions, the annual current account deficit would have been 4.2% of gross domestic product (GDP), still a big improvement from the 8.7% peak at the end of 2008, he said.
As the economy recovered, the deficit would start to widen again, but that would be from a much better starting position.
ANZ-National forecast the annual current account deficit to improve further in the near term towards around 2.25% to 2.5% of GDP by the early part of 2010 before increasing again.
Higher commodity prices for New Zealand's major exports, particularly dairy, would provide support to export receipts.
However, with domestic demand recovering, imports would start to increase.
Given that firms had generally run their inventory levels well down, New Zealand was set for a period where import growth would outstrip domestic demand growth, as inventories were replenished, he said.
"When we eye the traditional lags between the currency and the goods and services balance, we can reasonably expect a return to deficits on that basis in the second half of the year - despite the recent falls in the New Zealand dollar."
With improved profits from foreign-owned firms likely as the economy recovered, and higher debt servicing costs on the back of higher interest rates next year, it was easy to see the current account deficit worsening towards the second half of next year, Mr Bagrie said.
With the Government set to continue running fiscal deficits for the next seven or so years, and so long as households continued to spend more than they saved, it was difficult to avoid a return to current account deficits of 5% to 7% of GDP.
"We are sure that credit rating agencies will not sit idly by and watch this occur," he said.
