Higher earnings from overseas and booming tourism have narrowed the difference between what the country earned and spent internationally.
The difference between what the country earned and spent internationally has narrowed. Photo: 123RF
Official figures show the actual current account deficit was $2.3 billion in the three months to December. It was $7.1b for the year - 2.7 percent of the economy's value.
Some analysts pick it to narrow further because of a strong tourism market and improving dairy incomes.
On a seasonally adjusted basis, the deficit declined to $1.6bn, the smallest shortfall since March 2014.
The primary income deficit, which is mainly made up of investments, declined to $2bn in the December quarter.
"New Zealand earned $2bn from investment overseas, $129m more than in the September quarter," Statistics New Zealand international statistics senior manager Daria Kwon said.
"A large portion of this extra income was reinvested back into the overseas subsidiaries, instead of being paid out as dividends."
The tourism boom continues to keep the country's deficit in check, with more people holidaying here and spending more - such as at Franz Josef Glacier. Photo: 123RF
At 31 December 2016, New Zealand had $240.6bn of investment abroad (financial assets). On the flip side, foreign investments in New Zealand (financial liabilities) were valued at $397.1bn.
Secondary income recorded a surplus for the first time since the June 2015 quarter, largely because of an increase in taxes paid by non-residents.
The tourism boom continued to help keep the country's deficit in check, with a services surplus of $1.2bn.
"The number of tourists to New Zealand increased in the December quarter, as did the average amount each tourist spent," Ms Kwon said.
In contrast, the goods deficit widened to $833m because businesses and households consumed more imports, while the value of exports remained flat.
The country's net liabilities position, an indicator of indebtedness, fell to $156.5bn, or 59.9 percent of GDP, the lowest since records began in 2000.
The annual deficit of $7.1bn is at its smallest since September 2014, and below its historical average of 3.7 percent.
ANZ senior economist Phil Borkin said the bank saw the risks "skewed towards modestly larger deficits".
"This reflects the impact that rising global interest rates will have on the costs of servicing the country's stock of external debt.
"Also the fact that the gap between domestic deposit and credit growth is narrowing only slowly (forcing a lift in offshore borrowing)."
GDP figures for the December quarter, due tomorrow, are expected to show a slowing in pace to about 0.7 percent and bring the annual rate back to 3 percent.
