NZ annual current account deficit higher than expected at 5% of GDP as value of exports falls, net international liabilities at $150.0b, or 72% of GDP

New Zealand's 2012 calendar year current account deficit was NZ$10.5 billion, equivalent to 5% of Gross Domestic Product (GDP), Statistics New Zealand says.

Economists' were forecasting a deficit equivalent to about 4.7% to 4.8% of GDP.

The deficit is an increase from a deficit of NZ$9.9 billion, or 4.7% of GDP, in the year ended September 2012. Statistics NZ says the rise is largely due to a NZ$1.3 billion fall in exports of goods and services, and less money spent by overseas visitors.

"Exports of dairy and crude oil were both lower than for the September 2012 year, while expenditure by overseas visitors to New Zealand also fell," Statistics NZ's balance of payments manager John Morris said.

"Dairy prices were much lower than a year ago, while overseas visitor spending has fallen from last year's boost by the Rugby World Cup."

Last year ANZ chief economist Cameron Bagrie described a 5% plus deficit as the "danger zone," with 5% a level that's often seen as "a tipping point" where it becomes more of a focus.

Meanwhile, for the December 2012 quarter, New Zealand's current account balance - adjusted for seasonal factors - was a deficit of NZ$2.7 billion. That compares with a deficit of NZ$2.5 billion in the previous quarter.

"The larger deficit this quarter was mainly due to a rise in income earned by foreign investors in New Zealand. Foreign shareholders in New Zealand companies received larger dividend payments in the latest quarter," said Morris.

He said New Zealand funded the current account deficit mainly by borrowing from overseas. Foreign investors bought $3.1 billion of government bonds this quarter.

"As a result of this increased borrowing, New Zealand's net international liability position was NZ$150 billion (71.7% of GDP) at December 31, 2012, up NZ$2.2 billion from September 30, 2012."

The NZ$150 billion is equivalent to about NZ$33,624 per New Zealander.

A current account deficit means the rest of the world earned more from New Zealand than New Zealand earned from overseas.

ASB senior economist Jane Turner said the current account balance was "relatively close" to expectations in Q4.

"Over the coming year, there is scope for the current account balance to widen, as investment income outflows increase as the economy continues to improve. The drought is likely to have a mixed impact on the trade deficit, with lower volumes but higher (dairy) prices," she said.

"Beyond the near-term impacts of the drought, we expect the trade surplus should remain supported by relatively-elevated Terms of Trade. We also expect to see some recovery in the Services balance, as business service exports continue to grow.

"NZ’s net debt position is currently masked by outstanding earthquake claims with foreign reinsurers. Beyond this, the banking sector has reduced its external debt position, reducing NZ’s current vulnerability to offshore debt markets. The Government remains committed to returning the fiscal balance to surplus over the coming years, and this should cap the increase in the official sector’s net debt position."

(Updated with comments from economists).