New Zealand Q3 current account deficit widens sharply, annual gap improves

New Zealand’s current account position deteriorated sharply in the September quarter, with the headline deficit blowing out to NZ$8.37bn, far wider than market expectations and a marked worsening from the prior quarter’s NZ$1.30bn shortfall. While the seasonally adjusted deficit was more modest at NZ$3.78bn, it still edged wider, underscoring ongoing external imbalance pressures in the economy.

On an annual basis, the current account deficit narrowed to NZ$15.37bn, equivalent to 3.5% of GDP. That outcome was materially better than the Reuters poll expectation of a 4.8% of GDP shortfall, offering some reassurance that New Zealand’s external position is improving at a trend level despite volatile quarterly outcomes.

The current account matters because it captures the economy’s net borrowing requirement from the rest of the world. Persistent deficits imply reliance on foreign capital inflows to fund consumption and investment, leaving the currency more exposed during periods of global risk aversion or tightening financial conditions. For New Zealand, a small open economy with a high foreign ownership share of assets, this makes the current account a key macro anchor for NZD valuation and offshore funding costs.

The sharp quarterly deterioration likely reflects a combination of weaker export receipts, elevated import volumes and income outflows, rather than a renewed deterioration in domestic demand. Importantly, the improvement in the annual deficit suggests the peak drag from earlier terms-of-trade weakness may be passing, helped by stabilising commodity prices and softer domestic demand conditions.

From a policy perspective, the data does little to alter the Reserve Bank of New Zealand’s near-term outlook. A still-sizable but improving annual deficit is consistent with an economy that is slowing rather than overheating, reinforcing the case for patience as tighter financial conditions work through the system.

For markets, the composition matters more than the headline. A sustained improvement in the annual current account position would reduce medium-term vulnerability for the NZD, even if near-term quarterly volatility continues to generate noise.

This article was written by Eamonn Sheridan at investinglive.com.