Economists say the current account deficit, which has now hit 5% of GDP, is set to blow out further in the future.
New Zealand's 2012 calendar year current account deficit was NZ$10.5 billion. A current account deficit means the rest of the world earned more from New Zealand than New Zealand earned from overseas.
Westpac economist Nathan Penny says the latest increase in the deficit is a "worrying symptom of New Zealand's two-speed economy and re-emerging imbalances".
BNZ economist Doug Steel also sees "imbalances" in the economy and says they are set to worsen.
"We see today's outcome as part of the slippery slope that we think the external accounts are on," he says.
"We see the current account deficit nudging 6% of GDP by the end of 2013 and 7% by the end of 2014.
"That might, and should, garner a bit more attention from the market and rating agencies alike, even if part of it is temporary on account of the anticipated impacts of the drought and Canterbury investment surge."
Westpac's Penny sees the deficit widening to over 6% of GDP over the next couple of years "as the drought weighs on export volumes, imports rise as the Christchurch rebuild continues to ramp up and foreign-owned firms become more profitable".
Penny says the economy is clearly improving, but the driver is domestic demand.
"The Canterbury rebuild is driving activity higher as are rising house prices, while household spending and business confidence are on the up.
"Meanwhile, the export sector is struggling with the high exchange rate and now drought. All this adds up to an economy taking two steps forward and one step sideways.
"Many businesses will enjoy the improvement in the domestic economy. And markets will continue to look favourably upon New Zealand compared to our international peers. But we worry-pants economists will fret about worsening economic imbalances such as the current account deficit, the household debt to income ratio (which is rising), overvalued house prices, and the overvalued exchange rate.
"Eventually, New Zealand’s ‘borrow and spend’ ways may get it in trouble," Penny says.
BNZ's Steel says his bank has "long discussed" the prospect of deteriorating external accounts as a strong building investment impulse is unleashed as the Christchurch rebuild amplifies an already positive outlook for domestic construction.
"National savings have never looked liked keeping pace, and still don't.
"Not with rising house prices and very low interest rates encouraging consumption over saving. It might keep growth chugging along in the near term and probably even with relatively low headline inflation for a while. But a wider current account deficit does ask questions about the sustainability of such growth rates in the medium term.
"The current drought conditions simply add to the negative outlook in our view. For a start, it will directly widen the merchandise trade deficit. And while it is quite conceivable that the reduction in national income pulls down domestic savings a big chunk of domestic investment will likely barrel on regardless of current income."
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