New Zealand's current account deficit has pushed out beyond expectations to 5% of gross domestic product (GDP), hitting $10.5 billion for the full-year 2012.
Some analysts see the incremental, but headline move to 5% of GDP, as the thin end of the wedge. The deficit could reach 6% of GDP by the end of this year and pass 7% during 2014.
The current account, measuring the country's trade flows and investment returns, saw the fourth-quarter current account deficit rise to $3.25 billion, higher than market expectations of a $2.95 billion deficit, according to Statistics New Zealand data released yesterday.
ASB senior economist, Jane Turner, said the wider deficit was due to increased investment income outflows from a bounce-back in profitability of foreign-owned NZ companies, which followed a weaker profit outflow in the previous quarter.
''Over the past year, foreign-owned companies have increased their reinvestment rate in New Zealand businesses, with the proportions of profits paid as dividends falling,'' she said.
The annual current account deficit was largely due to the smaller goods surplus because of lower dairy export prices.
''Over the coming year, we expect the drought to have a mixed impact on the current account, with some offsetting price/volume movement for both dairy and meat,'' she said.
BNZ economist, Doug Steel said he thought the imbalances appeared set to worsen.
''We see today's outcome as part of the bigger slippery slope that we think the external accounts are on. We see the current account deficit nudging 6% of GDP by the end of 2013 and 7% by the end of 2014,'' he said.
While the 5% current account deficit was only ''mild slippage'' from the previous quarter's 4.7%, it was in line with Mr Steel's expectations and only slightly wider than the 4.9% expected by the market. Hitting 5% breached a psychological barrier.
The increased deficit was mainly due to a $1.3 billion fall in exports of goods and services, while exports of dairy and crude oil both fell.
SNZ balance of payments manager John Morris said overseas visitor spending had fallen after the Rugby World Cup.
