Falling inflation and weak services add pressure for cuts
New Zealand’s seasonally adjusted current account deficit narrowed by $702 million to $3.4 billion in the June 2025 quarter, Stats NZ has reported.
It’s the smallest quarterly deficit since June 2021 and points to slightly reduced pressure on the New Zealand dollar and borrowing costs.
“The smaller current account deficit was due to a $1.0 billion narrowing of the primary income deficit,” Stats NZ international accounts spokesperson Viki Ward said. “This was mainly due to New Zealand investors earning more from their investments abroad.”
For mortgage advisers, the improvement signals a small easing in the country’s dependence on foreign capital – a key factor that influences the Reserve Bank’s (RBNZ) approach to interest rates.
The update comes as monthly inflation fell 0.5% in August, bringing annual inflation down to 3.2%. Economists now expect inflation to peak below 3% in the third quarter, with some warning that slower services activity may prolong the recovery and keep downward pressure on interest rates.
Overseas income helps narrow gap
The primary income deficit narrowed to $2.3 billion, the smallest since 2021, as KiwiSaver funds and overseas subsidiaries posted stronger results.
“New Zealand’s overseas invested pensions earned more income this quarter,” Ward said in a media release. “The overseas subsidiaries of New Zealand companies also recorded a growth in earnings this quarter.”
The gap also narrowed as foreign investors earned less from New Zealand in the same period. For advisers, that’s another signal of the shifting flow of capital that can shape the NZD and funding costs for banks.
Goods and services trade remain weak
Not all news was positive. The goods deficit widened slightly to $128 million as exports of dairy, fruit and meat fell, matched by weaker imports of fuel and machinery. The services balance also weakened, with a $690 million deficit compared with $566 million in the March quarter.
Services exports slipped by $12 million to $8.0 billion, while imports rose $112 million to $8.7 billion.
The weakness in services trade mirrors broader signs of contraction, with BNZ’s Performance of Services Index dropping to 47.5 in August — the second straight monthly fall.
These softer trade and services figures reinforce the sluggish growth picture, which could keep the RBNZ cautious about tightening further, even as inflation risks remain.
Annual deficit narrows, but still high
On an annual basis, the current account deficit eased to $16.0 billion (3.7% of GDP) in June 2025, down from $18.3 billion (4.2% of GDP) in March.
Stats NZ noted that a deficit shows New Zealand is spending more overseas than it earns, with its size relative to GDP reflecting the economy’s reliance on offshore funding.
For borrowers, the improvement is a modest positive: a smaller deficit can help ease downward pressure on the currency, support financial stability, and reduce some of the risk premium built into wholesale funding — ultimately flowing into mortgage rates over time.
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