Current account deficit widens to $2.7 billion

Lower exports saw New Zealand‘s current account figure – the difference between the country earns and what it spends overseas – widen to a deficit of $2.7 billion for the three months to September 30.

Today’s figures from Statistics NZ show a $700 million deterioration from the $2 billion deficit recorded in the three months to June 30.

The larger deficit was mainly due to a fall in the goods surplus, as lower prices for exports of meat, dairy, and forestry products combined to see a $600 million drop in the value of goods exported.

New Zealand's total exports of goods were valued at $11.7 billion this quarter.

A $400 million rise in the income deficit also pushed the deficit wider, as foreign investors earned more from their investments in New Zealand. This reflects increased earnings by foreign-owned banks.

Exports of services increased $200 million in the latest quarter.

"More overseas visitors came to New Zealand because of the Rugby World Cup. As a result, spending by overseas visitors and earnings of resident airlines were up," Statistics New Zealand’s balance of payments manager John Morris said.

International services payments, such as the Rugby World Cup hosting fee, partly offset the increase in overseas visitors' expenditure this quarter.

The country’s current account deficit for the year ending September 30 was $8.7 billion (4.3% of GDP) compared with a year-ended June 2011 deficit of $7.4 billion (3.7% of GDP). Economist forecasts were for the current account deficit to expand to $3.83 billion in the September quarter to an annual deficit of $8 billion, or 3.9% of GDP.

To finance the wider-than-expected deficit, New Zealand’s borrowings from overseas in the September 2011 quarter (recorded in the international investment position as a liability) rose to sit at $148.2 billion (as at September 30) or 72.9% of GDP – up from net international liabilities of $138.4 billion (69.0% of GDP) at 30 June 2011. 

While most of the rise in the net international liabilities was from a rise in net overseas debt, falling overseas sharemarkets decreased the market value of New Zealand's equity investments abroad by $4.1 billion.

New Zealand's international assets at 30 September 2011 included $12.7 billion of outstanding reinsurance claims from non-residents for the Canterbury earthquakes. A further $0.7 billion of claims were settled during the quarter, bringing total settlements to $1.4 billion so far.

New Zealand has had a current account deficit since the combined shock in 1974, of a collapse in the wool price, the United Kingdom joining the European Union, and the first oil crisis.

With the current account deficit at 4.3% and net international liability position at 73% of GDP, the starting point for NZ’s external position is in a worse position than seemed apparent a few months ago, ANZ economists said following the data release.  

“The economy still needs to rebalance towards an export-driven model and this will take time,” they said, adding “Given the historical nature of the data, the market implications of today’s data are limited. However, they highlight a less positive starting point, and provide the New Zealand economy with less flexibility to cope with adverse shocks.