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

New Zealand's current account deteriorated sharply in Q3 2023, with a headline deficit of NZ$8.37bn, far exceeding market expectations and significantly worse than the previous quarter's NZ$1.30bn shortfall. The seasonally adjusted deficit grew to NZ$3.78bn, indicating ongoing external balance pressures in the economy. However, on an annual basis, the current account deficit narrowed to NZ$15.37bn, around 3.5% of GDP, which is a notable improvement compared to the expected 4.8% shortfall from the Reuters poll. This suggests a trend-level improvement in New Zealand's external position despite volatile quarterly outcomes. A persistent deficit indicates reliance on foreign capital inflows, making the currency vulnerable during periods of global risk aversion. Consequently, while the sharp quarterly deterioration reflects increased import volumes and weaker export receipts, the annual improvement suggests decreasing strain from earlier terms-of-trade weaknesses, aided by stabilizing commodity prices and softer domestic demand. From a policy standpoint, these figures indicate a slowing economy which does not necessitate immediate policy adjustments from the Reserve Bank of New Zealand, advocating for a patient approach as tighter financial conditions continue to unfold. The market will focus on whether the annual current account position can sustain its improvement, potentially reducing vulnerability for the NZD in the medium term.