New Zealand's annual current account deficit for the year to December shrank to 3.1% of GDP, from 3.3% as of September, according to Statistics New Zealand.
The outcome is better than economists were forecasting, with a market average pick of an unchanged 3.3% figure.
Westpac senior economist Michael Gordon said the reason for the narrowing of the overall deficit - "and the surprise relative to our forecast" - was a fall in the outflow of profits from overseas-owned firms in New Zealand.
"While this might seem to be a positive in the sense that it improves the current account deficit, it does not reflect well on the strength of the domestic economy."
Stats NZ said the annual balance was a deficit of $7.7 billion this compared with a deficit of $8.1 billion (3.3% of GDP) for the year ended September 2015. As Westpac's Gordon exampled, Stats NZ said the decrease in the annual deficit for 2015 was mainly due to a smaller investment income deficit. A higher level of expenditure by international visitors to New Zealand also contributed.
“Over the 2015 year, spending by international visitors increased by $2.6 billion, to reach our highest recorded annual visitor spend despite the fall in the latest quarter,” international statistics manager Stuart Jones said.
However, NZ’s seasonally adjusted current account balance widened by $221 million in the December 2015 quarter, to a deficit of $1.9 billion. The larger deficit was driven by a fall in earnings from both goods and services exports. Over the past two years the current account deficit has ranged between $882 million and $2.4 billion.
The value of exported goods fell $554 million in the December 2015 quarter, led by dairy. This was almost all price driven, with a 13% fall. The value of imported goods also declined, down $276 million this quarter, following a record value of imported goods in the September 2015 quarter.
“While lower petrol prices caused the value of imports to decrease, the fall in dairy prices in the latest quarter had a bigger impact on our exports, resulting in a larger deficit,” Jones said.
In the December 2015 quarter services exports fell for the first time since the December 2013 quarter, driven by travel exports. Despite an increase in the number of international visitors to New Zealand in the latest quarter, total expenditure fell $57 million.
The current account deficit in the December 2015 quarter was funded by a net inflow of investment, which was mainly due to a reduction in New Zealand’s assets held overseas. The reduction in our assets meant New Zealand’s net international liability position widened $493 million, to $151.2 billion (61.4 percent of GDP) at 31 December 2015. The net international investment position measures the value of our overseas assets less our overseas liabilities.
GDP figures for the December quarter will be released by Stats NZ tomorrow.