Higher earnings from overseas

Higher earnings from overseas shrinks current account deficit – Media release

15 March 2017

New Zealand earned more income from our overseas investments in the December 2016 quarter, Stats NZ said today. This resulted in the lowest current account deficit since March 2014. The seasonally adjusted current account deficit decreased to $1.6 billion for the December 2016 quarter, $420 million smaller the September 2016 quarter’s deficit.

“New Zealand earned $2.0 billion from investment overseas, $129 million more than in the September quarter,” international statistics senior manager Daria Kwon said. “A large portion of this extra income was reinvested back into the overseas subsidiaries, instead of being paid out as dividends.”

New Zealand’s primary income deficit decreased to $2.0 billion in the December 2016 quarter, $140 million lower than in the September 2016 quarter deficit. Primary income comes mostly from investments. Typically, dividends are returned to New Zealand investors from overseas investments twice a year, not in every quarter.

At 31 December 2016, New Zealand had $240.6 billion of investment abroad (financial assets). On the flip side, foreign investments in New Zealand (financial liabilities) were valued at $397.1 billion.

New Zealand earned more from our exports of services than we spent on imports of services in the December 2016 quarter. This meant the services surplus of $1.2 billion was $174 million larger than in the September 2016 quarter. The increase for services exports in the latest quarter was influenced by higher spending by international visitors to New Zealand.

“The number of tourists to New Zealand increased in the December quarter, as did the average amount each tourist spent,” Ms Kwon said.

The goods deficit was $130 million larger in the December 2016 quarter, at $833 million – the largest deficit since the September 2008 quarter. Imports of goods increased $127 million, with New Zealand spending more on importing cars and parts in the latest quarter.

The current account balance is seen as an important indicator of a country’s financial position. A balance of payments deficit means New Zealand imported more goods, services, and capital than it exported.

To finance a deficit, we usually borrow funds from overseas (inflow of investment). However in the latest quarter we had a net outflow of investment ($3.3 billion). In the December 2016 quarter banks increased their investment assets held overseas (such as currency and deposits). This was financed by additional funds sourced from within New Zealand rather than by raising funds from overseas.

New Zealand’s annual current account deficit was $7.1 billion (2.7 percent of GDP) for the year ended December 2016, down from $8.3 billion (3.4 percent of GDP) for 2015.

Capital account surplus

The 14 November Kaikōura earthquake triggered New Zealand insurance companies to claim on reinsurance policies they hold with overseas reinsurers (as an individual makes an insurance claim). The amount of these reinsurance claims is provisionally $694 million according to insurance firm estimates so far. This resulted in a capital account surplus of $683 million for the December 2016 quarter, the second capital account surplus since the March 2015 quarter. The value of reinsurance claims will be updated as new information is collected.

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