Annual current account deficit widens to $9.5 billion
New Zealand’s current account deficit for the year ended June 2018 widened to $9.5 billion, 3.3 percent of GDP, Stats NZ said today.
The deficit is $2.4 billion wider than the year ended June 2017 deficit and is the largest since the year ended June 2009. A $2.1 billion increase in the primary income deficit was the main contributor.
During 2009, our current account deficit dropped from a record peak of 7.8 percent of GDP to 2.2 percent; it has hovered between 2 percent and 4 percent since.
Although the dollar value of the current account deficit has now risen to a similar level as during the global financial crisis, the economy has grown even more. As a result, our net spend with the rest of the world has shrunk relative to the size of New Zealand’s economy. The latest deficit is equal to 3.3 percent of GDP, larger than for year ended June 2017 (2.6 percent).
Net liability position narrows as a percentage of GDP
At 30 June 2018, New Zealand’s net liability position was $157.9 billion. Compared with 30 June 2009 ($156.6 billion liability) it is slightly wider. As a percentage of GDP, the current liability position is 54.6 percent; in June 2009 it was 82.6 percent, the second-highest since the series began. The highest was at 31 March 2009 (84.2 percent of GDP).
The net liability position is how much New Zealand owes to the rest of the world.
“If the rest of the world called in all the debt New Zealand owes overseas today, it would equate to over half of all expenditure in New Zealand in one year,” international statistics senior manager Peter Dolan said.
“While still considered high, this quarter’s position is significantly lower than our record level in 2009. It’s regularly been reaching record lows in recent quarters.”
Portfolio investment sets up a tidy nest egg
The value of our assets and liabilities have both risen at similar levels since June 2009. The main driver on both sides is a rise in the value of portfolio investment. For example, when KiwiSaver or the New Zealand Superannuation Fund invests in overseas shares, this investment comes through portfolio investment.
Since June 2009 we have invested an additional $56 billion overseas through portfolio investment. The value of our portfolio investment assets has risen due to favourable market price changes.
“New Zealanders have been investing overseas in the likes of shares and have benefited from favourable global sharemarkets,” Mr Dolan said.
Over the same timeframe overseas investors have seen the value of their portfolio investments in New Zealand rise $16 billion, due to favourable market price changes, and have invested an additional $88 billion into New Zealand, providing an inflow of funds.
In total, at 30 June 2018 New Zealanders had $146 billion of portfolio investments overseas, but overseas investors had $207 billion in New Zealand.
Text alternative for diagram: Flows of New Zealand investment, June 2009 to June 2018
Diagram has two column graphs showing inward and outward flows of New Zealand investment between the June 2009 and June 2018 quarters.
Graph 1 shows flows of New Zealand investment abroad.
Direct investment total was -$4.7 billion,
portfolio investment was $55.8 billion, financial
derivatives were -$23.2 billion, other investment was -$8.5
billion, and reserve assets were $14.0 billion.
Graph 2 shows flows of foreign investment into New Zealand.
investment total was $14.7 billion, portfolio investment was
$87.9 billion, financial derivatives were -$25.4 billion,
and other investment was: -$18.4