Annual Current Account Deficit Narrows

Embargoed until 10:45am – 28 June 2007

Annual Current Account Deficit Narrows

The current account deficit for the year ended March 2007 was $13.9 billion (8.5 percent of GDP), Statistics New Zealand said today. This compares with deficits of $14.5 billion (9.0 percent of GDP) for the year ended December 2006 and $14.9 billion (9.6 percent of GDP) for the March 2006 year.

The reduction in the March 2007 year deficit from the previous March year deficit was mainly due to increased exports of goods. This was driven by high prices and record volumes of dairy exports throughout the year. The improvement in the goods balance was partly offset by a larger deficit on investment income.

This was mainly due to increased interest payments to foreign lenders, reflecting a higher level of overseas debt at March 2007 than at March 2006.

In the March 2007 quarter, the seasonally adjusted current account deficit was $3,620 million, $50 million larger than the December 2006 quarter deficit. The increase in the quarterly deficit was due to higher imports of goods and services, combined with lower receipts of non-resident withholding tax. Imports of services rose by $65 million, largely due to more New Zealanders departing on trips overseas. These factors were offset by a fall in income earned by foreign investors on their New Zealand investments this quarter, and a rise in income earned on New Zealand’s investments overseas.

A current account deficit represents an economy’s demand for resources exceeding its domestic supply, and can be financed by increasing external liabilities, reducing external assets or a combination of both. The current account deficit in the March 2007 quarter was financed by a net capital inflow of $2.5 billion, as $9.0 billion of foreign investment into New Zealand exceeded $6.5 billion of New Zealand investment overseas.

New Zealand’s net international liability position at 31 March 2007 was $145.0 billion, an increase of $15.0 billion from one year ago. Of the increase, $11.5 billion is an increase in net overseas debt, largely as a result of the banking sector increasing its borrowing from overseas.

Geoff Bascand
Government Statistician

ENDS

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