Sept quarter current account deficit near six-year high

The impact of falling dairy export receipts was a primary contributor to the balance of payments deficit on current account pushing out to $2.5 billion in the three months to Sept. 30, the highest since the December 2008 quarter, according to Statistics New Zealand.

On an annual basis, the current account deficit weighed in at $6.1 billion, or 2.6 percent of gross domestic product, still low by historical standards but consistent with expectations that the balance between what New Zealand receives from the rest of the world versus what it brings in will deteriorate over the next five years. (See graph below)

Yesterday's half year economic and fiscal update from the Treasury forecasts the current account deficit will peak at 6.2 percent of GDP in March 2016, before falling back to 5.9 percent of GDP by March 2019. The current account deficit oscillated between 6 and 8 percent of GDP in the latter half of the 2000s before falling dramatically after the global financial crisis in 2008.

The value of exported goods fell by $380 million in the September quarter, compared with the June quarter, while imports rose by $325 million, reflecting the lumpy impact of aircraft imports and higher holdings of offshore oil stocks by New Zealand companies.

"With the value of goods exports falling and imports rising, the current account deficit is now the largest it has been in nearly six years," Statistics NZ said in its statement.

On a more positive note, New Zealand's net external debt position continued to improve, falling $500 million to $141.8 billion, or 59.9 percent of GDP. Net external debt peaked at almost 80 percent of GDP in December 2008.

However, net international liabilities, measuring the value of New Zealand assets held offshore minus overseas liabilities, deteriorated compared to the June quarter, widening by $800 million to $152.3 billion, or 64.3 percent of GDP.

The kiwi dollar depreciated by 11.5 percent against the US dollar over the three months in question, causing increases in the value of both assets and liabilities held offshore.

The balance on services fell slightly against the June quarter, reflecting reduced transportation service exports, recording a $376 million surplus for the quarter.

Income from foreign investments in New Zealand fell $170 million in the quarter, compared to the June quarter, with New Zealand firms paying lower dividends to offshore owners. That partly explains a $246 million improvement between the June and September quarters on the so-called "primary income deficit", at $2.32 billion for the quarter.

Over the 12 months to September, however, the larger current account deficit was "mainly driven by profits made by foreign owned companies in New Zealand over the year," Statistics NZ said in its release.

(BusinessDesk)