Goods Imports Widen Current Account Deficit

Goods Imports Widen Current Account Deficit

The seasonally adjusted current account deficit was $3,814 million in the September 2005 quarter, Statistics New Zealand said today. This was $701 million larger than the deficit in the June 2005 quarter, and resulted mainly from an increase in goods imports. Falling goods exports also contributed to the widening gap between receipts and payments.

The current account measures the value of New Zealand's international transactions in goods, services, investment income and transfers. The rise in the value of imports in the September 2005 quarter was due to increases in both import prices and volumes. Rising world prices for petroleum and petroleum products were the most significant contributors to the increase in import prices in both the June and September 2005 quarters. Export prices also rose in the September 2005 quarter, but were more than offset by a decrease in export volumes, particularly for dairy products.

The trend estimate for the value of goods exports, which rose consistently from the December 2003 quarter to the March 2005 quarter, fell in both the June and September 2005 quarters.

A small offset to the overall pattern of falling exports arose from spending by Lions supporters, which boosted earnings from travel services in the September 2005 quarter.

The current account deficit was $12.9 billion in the September 2005 year, or 8.5 percent of GDP.

This compares with a deficit of $12.1 billion for the June 2005 year (8.0 percent of GDP) and $8.7 billion in the September 2004 year (6.0 percent of GDP). The $4.2 billion increase in the current account deficit between the September 2004 and September 2005 years was due mainly to higher income payments to foreign investors in New Zealand and an increase in imports of goods.

The current account deficit represents the economy's demand for resources exceeding its domestic supply, and is financed by reducing external assets, increasing external liabilities, or a combination of falling assets and rising liabilities. @

The September 2005 quarter current account deficit was financed mainly by reducing New Zealand 's overseas assets. Withdrawals of New Zealand investment from abroad were $4.5 billion in the September 2005 quarter. The main factor was the New Zealand banking sector reducing their lending abroad, and reducing deposits held abroad. Foreign investment into New Zealand in the September 2005 quarter was $1.3 billion. Key features were increased borrowing from overseas by the corporate sector, and increased foreign investor holdings of New Zealand government securities.

Compared with one year ago, New Zealand's net international liability position is now $16.1 billion larger. Of the increase, $12.1 billion is an increase in net overseas debt. Virtually all this rise, from $95.3 billion at 30 September 2004 to $107.3 billion at 30 September 2005, is attributed to the banking sector reducing its lending to overseas (assets).

Brian Pink

Government Statistician

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