Westpac said it expected New Zealand's current account deficit to reach 9% of GDP by the end of 2008, despite the largest positive terms-of-trade boost in decades.

Westpac announced its forecast for the September quarter balance of payments, predicting the current account balance to fall to 8.6% of GDP for the September year from 8.4% in the year to June.

For the year ended September, Westpac forecast the current account deficit to be NZ$15.48 billion, up from a deficit of NZ$14.892 in the September 2007 year.

If the current account announcement on Monday is in line with Westpac's expectations, it will highlight an economy that has become more vulnerable to financial stress as it relies on foreign debt to pay for its consumption.

New Zealand's banks currently have NZ$81 billion of wholesale debt that matures in less than a year, the Reserve Bank reported in its Financial Stability report (Table 4.1).

"It's fairly damning that the New Zealand economy could experience the largest positive terms-of-trade shock in decades, yet still fail to record a trade surplus at any point," Westpac said.

BNZ's current account deficit forecast for the year to September is in line with Westpac's, with negative 8.5% of GDP expected. ASB is forecasting negative 8.7%.