NZ: Current account deficit should narrow in Q4 - ANZ

Research Team at ANZ expects that the NZ’s unadjusted current account deficit should narrow in Q4, in line with the typical seasonal pattern.

Key Quotes

“We expect a $2.6bn deficit, around half as large as that recorded in Q3. This would be enough to see the annual deficit fall to 2.8% of GDP, the smallest since Q3 2014.”

“The seasonally adjusted deficit is also expected to narrow, albeit modestly, with offsetting movements at the compositional level. Although the terms of trade bounced strongly in Q4, the goods deficit looks set to widen a touch, given export volume weakness. A lift in international tourist spending (after some softer quarters) should boost the services balance, which we estimate will rise to the highest level on record. Overall, we see the seasonally adjusted goods and services balance printing around +$480m. The income deficit has been remarkably stable of late and we have little reason to think that stability won’t have continued in Q4, with the deficit to remain around $2.3bn.”

“At this point in the cycle, New Zealand’s external imbalances would typically be much more of an issue. However, the current account deficit remains below historical averages and external debt is well down on where it peaked in 2008. In part this reflects the fact that a housing boom has not been followed by a consumption boom equivalent as has often occurred in the past.”

“However, the risks are skewed towards the deficit widening (albeit modestly) from here. In particular, the gap between domestic credit and deposit growth remains large. While we do see that gap closing in time, this is occurring only slowly. That’s creating offsetting tensions. It means pressure for credit to slow further, which risks turning a moderation in growth into a more aggressive slowdown. However, not slowing credit growth further would mean a wider current account deficit.”