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Goods and Services Improve Current Account Deficit

21 September 2006

Goods and Services Improve Current Account Deficit

The seasonally adjusted current account deficit was $3,524 million in the June 2006 quarter, $642 million narrower than the March 2006 quarter deficit, Statistics New Zealand said today. The smaller deficit this quarter was due to an increase in the value of goods exported, combined with an increase in expenditure by visitors to New Zealand. These factors were partly offset by an increase in income earned from foreign investment in New Zealand.

Seasonally adjusted exports of goods increased to $8,856 million in the June 2006 quarter, with both prices and volumes contributing to the increase. Export prices of goods rose 8.0 percent, while the largest increases in export volumes were for dairy products and meat. Exports of services rose to $3,139 million this quarter, mainly due to an increase in spending by overseas visitors to New Zealand.

In the June 2006 quarter, New Zealand’s investment income deficit rose to $3,240 million. A $297 million rise in income earned by foreign investors from their investments in New Zealand was partly offset by a $164 million increase in income from New Zealand investment abroad. Income from foreign investment in New Zealand increased due to higher profits from foreign-owned New Zealand companies and interest paid on New Zealand’s overseas debt. In the June 2006 quarter, foreign-owned companies mostly chose to pay out profits as dividends rather than retain earnings within their subsidiaries.

The year ended June 2006 current account deficit was $15.2 billion, $3.1 billion wider than for the year ended June 2005. This widening is mostly due to a $1.9 billion rise in the investment income deficit, resulting from a fall in income earned from New Zealand investment abroad, combined with an increase in income earned by foreign investors from their New Zealand investment.

New Zealand’s current account deficit is financed by either increasing foreign liabilities, reducing foreign assets, or a combination of both. In the June 2006 quarter, New Zealand’s current account deficit was financed by a $2.3 billion net inflow of capital, primarily due to reducing New Zealand’s foreign assets.

Geoff Bascand Acting Government Statistician

ENDS

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