Treasurer Bill English said today that the current account deficit of 6.3% of GDP in the year to June was in line with market expectations.

"A deterioration recorded since March largely represents a fall in the merchandise trade surplus and was widely anticipated. Exports were weak in the quarter because lagged effects of drought have reduced the primary product volumes available for export.

"Looking forward, most forecasters expect export growth to strengthen as we move into next year. The world economy is looking much brighter than it was earlier in the year. New Zealand exporters are well positioned to take advantage of rebounding markets.

"In the short term, however, the current account deficit is likely to widen in coming quarters to 7-7.5%. The arrival of the second ANZAC frigate in the December quarter will add 0.5% of GDP to imports, and higher oil prices will also increase the cost of our imports, serving to dent our trade position.

"The deterioration in the annual current account deficit was greater than expected due to revisions that were made to the historical investment income data

"New Zealand's large current account deficit does make us vulnerable to changes in international investor sentiment. Prudent fiscal policy and policies which encourage the growth that is starting to pick up in the export sector will be essential to limit our vulnerability to external shocks," said Mr English.

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