Historical data to be released tomorrow and Friday is expected to show that New Zealand remains in recession and the current account deficit, about $15 billion, remains a central theme in rebalancing the economy.
A "reasonable" narrowing in the annual current account deficit is expected by most economists to come courtesy of a capitulation in imports.
Further improvement is likely in coming quarters although a sustained adjustment still relies on a lower New Zealand dollar.
ANZ-National Bank chief economist Cameron Bagrie said that with the economy having been in recession for five quarters, it had taken some time for the adjustment to flow through to the external accounts.
The capitulation in imports should show the annual current account deficit reducing to 8.3% of GDP in the March year from 8.9% in December.
"In seasonally adjusted terms, we are expecting the smallest quarterly deficit since June 2004. An improvement in the goods balance, lower profits from foreign-owned firms operating in New Zealand and reduced debt servicing costs, as interest rates have fallen, are also expected to contribute to the improved deficit in the quarter."
The combination of a recovering housing market, higher dollar and tradeable sector pain through a lower dairy payout and struggles for the tourism and manufacturing sectors, did not fit with a current account realignment process.
If the theme continued, imbalances were likely to remain large and could stymie any cyclical recovery the economy was starting to see, Mr Bagrie said.
A lower currency remained the key factor in order for the current account deficit to return to more sustainable levels.
On Friday, gross domestic product (GDP) figures were expected to show another contraction, which Mr Bagrie said would emphasise a deep recession.
If the 1% contraction transpired, it would be the largest quarterly contraction of the recession to date.
The weakness was expected to be broad-based but it was the manufacturing sector that would lead the charge.
Primary food manufacturing was affected by timing issues in livestock slaughtering following the surge seen in response to the drought last year. Offsetting that weakness was the resilience shown by the business and financial services sectors.
At a glance
• Current account deficit - 10.45am tomorrow - about $15 billion deficit.
• GDP - 10.45am Friday - March quarter -1%, annual -2.6%.
