Increasing overseas investor income driving current account again

While New Zealand’s goods trade is running a welcome surplus due mainly to high dairy and log prices, rising company profits and interest payments are once again weighing down the current account – the record of payments for goods, services, and income to and from New Zealand. The seasonally adjusted current account deficit rose $560 million to $1,814 million in the three months to June 2010 compared to March 2010.

“It is paradoxical that signs of improvement in the economy shown by rising overseas company profits mean that New Zealand’s indebtedness overseas increases,” said CTU Policy Director and Economist, Bill Rosenberg, commenting on today’s Statistics New Zealand release of the June 2010 Balance of Payments and International Investment Position. “We continue to become more dependent on overseas debt and investment while our export performance relies on a rise in commodity prices which is unlikely to last.”

The $2,795 million income deficit for the June 2010 quarter increased $449 million over the March 2010 quarter, mainly due to a $429 million increase in the investment income deficit. Most of the increase was due to a $480 million increase in foreign investors’ income from their investments in New Zealand. The income balance now includes some income paid to overseas employees which Statistics New Zealand is sourcing from IRD.

New Zealand’s net liabilities at 30 June 2010 increased by $2,713 million, or 1.7 percent, from 31 March 2010, rising to $163,694 million or 86.5 percent of GDP. About half of this increase was due to exchange rate and valuation changes, and half to financing the current account deficit.

The Reserve Bank appears to be having some success in weaning the banks off their risky short term overseas borrowing to finance mortgages in New Zealand. Overseas debt due in one year or less was 40.2 percent of the total at June 2010 compared to 39.5 percent at March, and 43.6 percent at June 2009. However, bank debt is an increasing proportion of New Zealand’s net overseas liabilities, making up 74 percent of net liabilities compared to 72.1 percent a year ago.

ENDS

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