NZ current account deficit, debt rise

WELLINGTON, Dec 21 (Reuters) New Zealand's annual current account
deficit widened more than expected in the third quarter on Wednesday, as
exports softened and foreign investors earned more from their New
Zealand investments.
The balance of payments data also showed a
rise in foreign debt as banks borrowed more offshore to fund loans to
domestic customers because of low domestic savings.
"It's a
doubledsided sword it's bad for the current account but it's actually
reflecting positive signs in the domestic economy," said UBS senior
economist Robin Clements.
"It's not a good look to have a current account deteriorating in the global environment."
The
kiwi dollar was briefly softer at around $0.7673 from $0.7684 before
edging back to predata levels, underpinned by improved risk sentiment
driven by stronger U.S. and European data. Local interest rate futures
were unmoved.
The deficit for the year to Sept. 30 widened to
NZ$8.7 billion ($6.7 billion) from a deficit of NZ$7.4 billion in the
previous quarter, equating to 4.3 percent of gross domestic product
(GDP) compared with the forecast of 3.9 percent of GDP in a Reuters
poll.
The current account deficit has started rising again, after
falling to a 21year low of 1.9 percent of GDP in March 2010 because of
large oneoff payments by major banks to settle a longrunning tax dispute
with authorities.
DEFICIT SET TO WIDEN
The deficit is
expected to worsen further as imports will rise along with a recovering
economy, but the rise in overseas liabilities debt was also seen as a
worry.
"With debt an ugly word at present, more progress will be
needed to boost ... saving ... so that an unwelcome adjustment is not
forced up on us," said ANZNational economist Mark Smith.
Smith said the onus will be on fiscal tools to boost savings and investments. "It will be painful, but necessary," he added.
New Zealand has relied on foreign borrowing to help fund its spending for decades due to low levels of household savings.
The
bigger deficit raised the country's net foreign liabilities, measured
by international investment positions, to 72.9 percent of GDP from 69
percent in the previous quarter.
The debt level peaked at 84.6 percent of GDP in March 2009. Australia's level is about 60 percent.
Standard
& Poor's and Fitch cut New Zealand's sovereign credits to double A
from double Aplus in September because of its high foreign debt.
The data does not affect the monetary stance of the Reserve Bank of New Zealand,
which has held its cash rate at a record low 2.5 percent since a 50
basis point cut in March to support sentiment after an earthquake in
Christchurch.
The annual balance showed a narrower trade surplus,
while investment deficit the gap between earnings for foreign investors
in New Zealand, and the country's foreign investments increased to
NZ$10.3 billion from NZ$9.6 billion.
The services deficit widened
slightly for the year, as the cost of the Rugby World Cup offset the
spending of more than 80,000 overseas visitors in September and October.
The
capital account posted a surplus of NZ$9.8 billion, after peaking at
NZ$13.7 billion in the June quarter on the inflows of insurance payments
resulting from the Christchurch earthquake this year.
The
central bank has forecast the annual current account gap to rise to 5.0
percent of GDP by March 2014 as the economy returns to normal growth,
increasing imports and investment earnings for foreigners.
($1=NZ$1.30)