Investment Income Drives Current Account Deficit

Embargoed until 10:45am – 29 March 2007

Investment Income Drives Current Account Deficit

The seasonally adjusted current account deficit increased $329 million in the December 2006 quarter, to $3,537 million, Statistics New Zealand said today. The current account measures the value of New Zealand's international transactions in goods, services, investment income and transfers. The increase this quarter was caused by larger investment income and goods deficits. These factors were partly offset by an improvement in the balance on services.

The widening of the income deficit in the December 2006 quarter was due to an increase in income payments to foreigners on their investments in New Zealand, and reflected a return to similar levels recorded in previous quarters. Exports of goods fell $346 million this quarter, with export prices and volumes both contributing to the decrease. Dairy products were the main contributor to the fall in exports this quarter. A fall in the price of petroleum and petroleum products was the main factor behind the decrease in the value of imports, which fell $264 million over the quarter.

The actual current account balance was a deficit of $3,929 million in the December 2006 quarter. This compares with an actual current account deficit of $4,667 million in the September 2006 quarter. The actual series is not adjusted for seasonal patterns, such as those in goods exports and tourism.

The year-ended December 2006 current account deficit was $14.4 billion (9.0 percent of GDP). This compares with the year-ended September 2006 deficit of $14.5 billion (9.2 percent of GDP) and the yearended December 2005 deficit of $13.9 billion (9.0 percent of GDP).

At 31 December 2006, New Zealand's balance sheet with the rest of the world was in a net liability position of $143.2 billion. This is $11.8 billion larger than the net liability position at 31 December 2005, and was due to rising net overseas debt. As New Zealand continues to borrow more from abroad, the cost of financing that debt increases. Interest paid on overseas debt is included in the investment income component of the current account.

Dallas Welch

Acting Government Statistician

ENDS

© Scoop Media