Current account deficit reflects growing economy
Current account deficit reflects growing economy
18 March 2015
New Zealand's seasonally adjusted current account balance was a deficit of $2.6 billion in the December 2014 quarter, Statistics New Zealand said today. This compares with a deficit of $2.4 billion in the September 2014 quarter. The larger deficit in the latest quarter is due to overseas companies earning more from their investments in New Zealand.
Companies tend to earn higher profits when the economy is growing. If nothing else changes, an increase in profits earned by foreign-owned companies in New Zealand will increase our current account deficit.
"Most of this quarter's increase in profits earned by foreign-owned companies in New Zealand was reinvested back into the company," international statistics manager Jason Attewell said. "In addition, companies were able to pay more dividends to their overseas portfolio shareholders this quarter, reflecting recent growth in the New Zealand economy."
This activity resulted in an increased income deficit, which was partly offset by increased spending by overseas visitors to New Zealand during the quarter. The number of overseas visitors to New Zealand was up 5.4 percent from the previous quarter, while expenditure by these visitors increased 14.1 percent to $2,828 million.
New Zealand's annual current account deficit was $7.8 billion (3.3 percent of GDP) for the year ended December 2014. This compares with a deficit of $6.1 billion (2.6 percent of GDP) for the year ended September 2014. The increase in the annual deficit was due to a fall in the goods surplus.
"Falling dairy prices contributed to a drop in exports in the last year, while imports of goods increased almost across the board," Mr Attewell said.
New Zealand's net international liability position was $153.9 billion (64.7 percent of GDP) at 31 December 2014, up $1.9 billion from the position at 30 September 2014.
The increase in the liability position was driven by a net inflow of foreign investment into New Zealand, which funds the current account deficit. This net inflow of investment featured overseas companies making new investments in New Zealand companies this quarter, while also increasing the equity held in their existing New Zealand subsidiaries.
Despite the increase in the net international liability position, New Zealand's net external debt position fell $0.9 billion to $141.3 billion (59.4 percent of GDP). The external debt position shows the difference between overseas lending and borrowing.
For more information about these statistics:
• Visit Balance of Payments and International Investment Position: December 2014 quarter
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