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Investment Offshore is Key to Reducing Deficit

Media Release

27 March 2008

Increased Investment Offshore is Key to Reducing Current Account Deficit

The Wellington Regional Chamber of Commerce today welcomed the narrowing of the current account deficit to 7.9% of GDP, but noted that increasing the number and profitability of New Zealand companies operating offshore is the key to turning it around.

“The reduced deficit reflects an increase in exports driven mainly by buoyant commodity prices - particularly for dairy. This is good news. The country must grow its exports if it is to prosper,” said Chamber CEO Charles Finny.

“However, the main contributor to the annual current account deficit is the balance of investment income, a $12.5 billion deficit compared with the overall deficit of $13.8 billion.

“Unfortunately, in contrast to the improving goods and service balance, the investment income deficit is still widening.

“The key to substantially reducing and turning around our current account deficit is improving the investment income balance by increasing the number and profitability of New Zealand companies operating offshore.

“There is also scope to increase New Zealand’s services exports. In the December 2007 year these totaled $12.7 billion, or 25% of total exports. This is a significant level and if not for the recent fall in overseas visitors to New Zealand would be even higher.

“Given the importance of offshore investment and services exports, the conclusion of a FTA with China and the recently announced financial services and investment negotiations between P4 countries and the United States are critical,” Mr Finny concluded.


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