Record dairy exports have seen New Zealand's current account deficit slashed to just $837 million in the December quarter.
The deficit is $1.7 billion smaller than in the September quarter.
Dairy exports rebounded strongly after the harsh drought of early 2013, that took the quarterly balance on goods and services to a $1.8b surplus - the biggest surplus since the Statistics NZ figures started in 1987.
Exports of goods jumped $1.4b in the quarter because of the strong dairy exports, at the same time as a drop in imports.
The annual current account deficit had improved massively from 4.1 per cent of gross domestic product for the 12 months to the end of September to just 3.4 per cent to the end of December. That was roughly in line with economists' expectations of a giant improvement in the deficit, after the big jump in export volumes.
Westpac Bank economists said the deficit was broadly in line with its forecast of a 3.3 per cent annual deficit. The exchange rate was unmoved by the current account figures.
At its worst in recent times, the deficit has blown out to about 8 per cent of GDP.
After last summer's drought, milk production returned to pre-drought volumes in the September quarter, but shipments did not go until the December quarter. There was also a lift in meat and manufactured exports in the quarter.
The current account measures the difference between what New Zealand earns and spends overseas. It is the sum of the balance of goods and services exports, less imports, and net income from overseas, and transfers. A current account deficit shows a country is a net borrower from the rest of the world.
The jump in dairy exports in the December quarter has seen the smallest seasonally adjusted current account deficit since the start of 2010, Statistics NZ figure show.
"New Zealand exported record levels of dairy products this quarter, which drove the balance on goods and services to its highest-ever surplus" Statistics NZ balance of payments manager Jason Attewell said.
But a $300m increase in New Zealand's investment income during the December quarter deficit partly offset the rise in goods exports.
As the economy improved, foreign-owned companies in New Zealand earned their highest profits in four years, mostly due to higher profits earned by the corporate sector this quarter.
The balance on services was in surplus by $140m in the December quarter, $146m smaller than the September quarter. That reflected a $156m fall in the export of services from the September quarter and is at a 15-year low.
Though visitors to New Zealand stayed longer, they spent less while here. New Zealand companies also earned less from film production services during the December quarter than in the September period.
Shooting of the last of the big-budget Hobbit movie trilogy finished about the middle of last year.
The annual current account deficit fell to $7.5b (3.4 per cent of GDP) for the year ended December 2013, down from $8.9b (4.1 per cent of GDP) for the year ended September 2013.
However, as interest rates are expected to rise in coming years, higher interest costs on foreign borrowing would likely see the deficit widen in the future.
Today's figures also showed New Zealand's net international liabilities were $147.6b, $2b less than in the September quarter. That reflected a rise in the value of overseas share prices, held by New Zealanders through fund managers.
- Fairfax Media