New Zealand’s seasonally adjusted current account deficit narrowed $372 million to $1.6 billion in the March 2020 quarter, Stats NZ said on Wednesday.
The current account records the value of the country's transactions with the rest of the world.
The smaller deficit was driven by our trade in goods with the goods deficit narrowing $613 million to $213 million.
The country's annual current account deficit for the year to March was $8.5 billion, down from $10.8 billion the year before.
The $8.5 billion was 2.7% of GDP (down from 3.6% last year and 3% as at the December quarter), which was in line with economists' forecasts.
ASB chief economist Nick Tuffley said the first quarter current account deficit had narrowed as expected.
The seasonally-adjusted goods trade deficit reduced on weaker imports, while the seasonally-adjusted services surplus softened, reflecting the net impact of reduced tourism flows. The net income outflow widened slightly as returns on NZ’s overseas investment reduced by more than foreigners’ earnings from their investments in NZ.
"The current account deficit narrowed over Q1 and over the year to March 2020, and we expect that trend to continue as the impact of the COVID-19 shock becomes more apparent over the remainder of 2020.
"NZ’s goods exports have been resilient, and are recovering from the disruption to Chinese-bound products earlier this year. The cooling of domestic spending will increasingly hit imports. Outflows of profits and debt-servicing payments to foreign creditors will also reduce on lower company profits and he impact of lower interest rates. These impacts will offset the net loss of income from the border closure," Tuffley said.
Westpac senior economist Michael Gordon said Wednesday’s release had no implications for March quarter GDP figures being released on Thursday, and which Westpac economists are expecting to show a 1% decline for the March quarter.
"We know that export industries were a relative bright spot for the economy, even during the lockdown period at the end of the quarter, with most food producers allowed to remain open as ‘essential services’. The big unknown for tomorrow’s release is the impact that the lockdown had on the domestic economy (and how well this will be captured in the official statistics)," Gordon said.
New Zealand’s services surplus narrowed by $83 million to $983 million during the quarter.
“Travel restrictions began in early February to combat the spread of COVID-19, followed by a shutdown of New Zealand’s borders to all non-residents from 19 March,” international statistics senior manager Peter Dolan said.
A $342 million fall in spending by international students and visitors was the main driver for the overall fall in services exports (down $460 million), followed by a fall in transportation services exports, down $83 million.
Services imports were also down $376 million during the quarter with travel services imports down $165 million and transportation services imports down $63 million