Current account deficit narrows despite higher dividend payments

The seasonally adjusted current account deficit decreased by $162 million in the June 2007 quarter, downto $3,415 million, Statistics New Zealand said today.

This quarter's narrowing of the current accountdeficit was due to a smaller goods and services deficit combined with increased inflows of current transfers.

These factors were partly offset by a widening of the investment income deficit.Seasonally adjusted imports of goods fell $349 million from the March 2007 quarter to the June 2007quarter, due mainly to a fall in merchandise import prices.

Seasonally adjusted exports of goods also fellthis quarter, down $305 million from the March 2007 quarter value.

The main driver behind this was a fall inexport prices, particularly for meat and wool. Partly offsetting these falls was a rise in dairy prices, driven byhigh world commodity prices.

However, despite the price increase, the value of dairy exports this quarterwas lower than the record reached in the March 2007 quarter.New Zealand’s income deficit rose to $3,014 million in the June 2007 quarter.

A $259 million increase inincome earned by foreign investors in New Zealand was partly offset by a $139 million increase in incomefrom New Zealand investments abroad.

Of the income earned by foreign direct investors in New Zealand,$1,483 million was paid overseas in dividends, while $239 million was reinvested in New Zealand.

Theincreased dividends paid to foreign investors this quarter meant an increase in non-resident withholding tax(NRWT) paid on this income, driving an increase in current transfers into New Zealand. NRWT is payableon non-resident's New Zealand-sourced dividend and interest income.

The actual current account deficit was $2,914 million in the June 2007 quarter.

This compares with a deficitof $2,205 million in the March 2007 quarter, and a deficit of $2,839 million in the June 2006quarter.

This quarter's current account deficit was funded by a net capital inflow of $2,678 million, as foreigninvestment in New Zealand of $4,357 million exceeded New Zealand investment abroad of $1,679 million.

New Zealand's net international liability position at 30 June 2007 was $148.6 billion, an increase of $5.5billion from 31 March 2007