Current account deficit falls sharply

The seasonally adjusted current account deficit was $612 million in the June 2009 quarter, $1,508 million smaller than the March 2009 quarter deficit of $2,120 million, Statistics New Zealand said today. The smaller deficit was due to a fall in income from foreign investment in New Zealand. Imports of services also fell, while the surplus on goods remained unchanged.

Income from foreign investment in New Zealand, which is not seasonally adjusted, fell by $1,186 million in the June 2009 quarter, to $2,068 million. This is its lowest level since the March 2001 quarter. "The fall was driven by lower profits earned this quarter by foreign-owned New Zealand enterprises, particularly in the banking sector," said Government and International Accounts Manager John Morris. The fall was influenced by a large company tax transaction during the quarter.

In addition to the fall in profits, interest paid to foreign investors on New Zealand's overseas debt fell by $214 million. Meanwhile, New Zealand investors' earnings from abroad remained stable. Imports of services were driven down by lower freight costs and less spending by New Zealanders on overseas trips.

The seasonally adjusted goods balance was a surplus of $822 million in the June 2009 quarter, unchanged from the March 2009 quarter. Exports of goods fell $771 million, mainly due to falling prices (especially for dairy products), which more than offset an increase in export volumes. Goods imports fell $772 million as both prices and volumes of imported goods decreased.

In actual dollar terms, the current account balance was a surplus of $124 million in the June 2009 quarter. The most recent surplus was in the March 2003 quarter – June quarter surpluses are unusual. If the effect of the company tax transaction affecting investment income were removed, there would be a deficit of $537 million.

For the year ended June 2009, the current account deficit was $10,614 million (5.9 percent of GDP), compared with $14,569 million (8.1 percent of GDP) for the year ended March 2009. This is the smallest year ended deficit as a percentage of GDP since September 2004.

The main causes of the $3,955 million smaller deficit from the March 2009 year were a $2,008 million reduction in the investment income deficit, and a $1,864 million turnaround in the goods balance from a deficit to a surplus. The lower income deficit was mainly caused by lower profits earned by foreign investors from their New Zealand subsidiaries. The main cause of the goods turnaround was a $2,260 million fall in imports of goods, driven by lower import volumes.

At 30 June 2009, New Zealand's liabilities exceeded its assets by $171.6 billion. This net debtor position is 95.2 percent of GDP, down 1.1 percent from $173.5 billion (96.4 percent of GDP) at 31 March 2009. In dollar terms, this is the first decrease since the March 2006 quarter.

Net changes in the valuation of New Zealand's assets and liabilities reduced the net debtor position by $2.5 billion, but were partly offset by a $0.6 billion net inflow of investment abroad, which increased liabilities. The main valuation effects were caused by the appreciation of the New Zealand dollar and rising sharemarkets abroad.