By Alex Tarrant
The gap between what the rest of the world earns from New Zealand, and what New Zealand earns from the rest of the world, narrowed during the September quarter, as profits earned by foreign-owned companies fell, figures released by Statistics New Zealand show.
But more imports during the year to September 2012 than in the September 2011 year meant the gap was wider than 12 months ago.
New Zealand’s current account deficit was the equivalent of 4.7% of GDP in the year ended September 2012, down from 4.8% of GDP in the year to June.
Economists polled by Reuters and Bloomberg had given a median expectation of a deficit of 4.8% of GDP in the year to September.
A quarterly deficit of NZ$2.5 billion in the three months to September 30 was down NZ$0.3 billion from the June quarter, Stats NZ said.
That was mainly due to a fall in profits earned by overseas-owned companies in New Zealand.
"Although foreign-owned companies earned less in New Zealand this quarter, over NZ$1.0 billion was still reinvested in New Zealand, the third quarter in a row that reinvested earnings have been at this level," Stats NZ said.
The annual current account deficit was NZ$9.9 billion (4.7% of GDP) in the year to September. This compared to a deficit of NZ$8.8 billion (4.3% of GDP) in the year to September 2011.
Stats NZ said the growth in the deficit over the year was due to increased imports of goods, although rising income earned from New Zealand investment abroad partly offset this.
New Zealand’s net international liabilities grew slightly during the September quarter from June 30, by NZ$0.2 billion to NZ$148.4 billion (71.2% of GDP), Stats NZ said.
“A net inflow of funds into New Zealand was mostly offset by exchange rate changes decreasing the value of New Zealand’s international liabilities,” Stats NZ said.
“An inflow of funds from overseas is required to fund a current account deficit – New Zealand’s expenditure is funded by either an inflow of foreign investment from overseas, or a withdrawal of New Zealand’s assets held abroad,” it said.
The net inflow of funds into New Zealand in the latest quarter featured NZ$1.3 billion of reinsurance claim settlements relating to the Canterbury earthquakes. Over one-third of total overseas reinsurance claims from the earthquakes has now been settled.
Expected to grow
The current account deficit is expected to grow towards 7% of GDP over the next few years, having fallen below 2% during the financial crisis from highs over 8% in the mid-2000s.
Treasury actually lowered its expectations of the peak in yesterday’s Half Year Fiscal Update. It expects a current account deficit of 6.2% of GDP in the March 2015/16 quarter, down from 6.5% expected at the time of the May Budget.
However, the new forecasts show the deficit is expected to rise to 6.5% of GDP in the 2016/17 year.
Meanwhile, the Reserve Bank’s latest forecasts show it expects a deficit of 5.5% of GDP in the March 2015 quarter, with Treasury expecting the same.
Goods surplus falls
New Zealand’s balance on goods in the year to September 2012 was a surplus of NZ$1.7 billion, down from NZ$3.1 billion in the year to September 2011, Stats NZ said.
“The lower surplus was due to a NZ$1.4 billion increase in imports of goods. Exports of goods remained flat as an increase in the value of dairy product exports was offset by lower meat exports,” Stats NZ said.
The increase in imported goods featured: higher imports of petroleum and petroleum products, as prices increased; more passenger motor cars being imported; greater volumes of mechanical machinery imports.
The Hobbit helps
The year-ended services deficit of NZ$787 million for the September 2012 year was NZ$202 million smaller than the September 2011 year deficit, Stats NZ said.
“Exports of personal, cultural, and recreational services (which includes film production services) increased NZ$303 million over this time. The Hobbit was produced in New Zealand during the latest year,” Stats NZ said.
Imports of services increased, which partly offset the rise in exports. Higher imports of services featured: New Zealand travellers spending NZ$188 million more during the latest year; Insurance services increasing (up NZ$123 million), due to increased premiums following the Canterbury earthquakes.
Earning more from investment abroad
New Zealand’s income deficit – the biggest contributor to the current account deficit – for the year ended September 2012 fell NZ$389 million to NZ$10.360 billion in September 2012 from September 2011.
“Income from New Zealand investment abroad for the year ended September 2012 was NZ$5.410 billion. This was NZ$249 million more than the previous year and was driven by an increase in income from New Zealand-owned subsidiaries abroad,” Stats NZ said.
Income from foreign investment in New Zealand for the year ended September 2012 was NZ$15.666 billion, compared with NZ$15.756 billion for the previous year.
Higher insurance premiums hit
The final piece of the puzzle, the current transfers deficit, was NZ$419 million in the year to September 2012, up NZ$222 million from the previous year.
“The larger deficit was mainly due to higher non-life insurance transfers, which relate to increased premiums following the Canterbury earthquakes,” Stats NZ said.
“In addition, despite a large quarterly fall, New Zealand’s international aid payments were NZ$82 million larger in the September 2012 year than in the September 2011 year, Stats NZ said.