By Lucy Craymer

WELLINGTON (Reuters) – New Zealand’s current deficit narrowed in the second quarter, official data showed on Wednesday, but the country’s external position remains well beyond sustainable levels.

The actual quarterly deficit was NZ$4.208 billion ($2.50 billion) in the three months to June, from a deficit of NZ$4.662 billion in the previous quarter, according to Statistics New Zealand.

The annual deficit to June was NZ$29.76 billion, equating to 7.5% of gross domestic product, down from a revised 8.2% of GDP in the first quarter.

New Zealand’s current account deficit as a proportion of GDP, a indicator that a country is living beyond its means, increased to its highest level in more than 30 years in the fourth quarter of 2022 and remains at historically high levels.

The size of the country’s external imbalances remain the key credit risk for New Zealand, according to ratings agency S&P Global in a note earlier this month.

ANZ economist Miles Workman said while the narrowing of the account deficit is welcome news, New Zealand’s external accounts remain severely out of balance and well beyond sustainable levels.

“From this starting position, New Zealand is still vulnerable to a terms of trade shock and/or drought that could result in unsustainable deficits sticking around for too long,” he said.

($1 = 1.6812 New Zealand dollars)

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