Balance of payments deficit shrinks to $1.25b

New Zealand's current account deficit shrank to $1.25 billion for the March quarter, the smallest March quarter current account deficit since 2004.

The smaller deficit came mainly from a fall in imports, partly offset by a decrease in exports, Statistics New Zealand said today.

The current account, also known as the balance of payments, measures all of New Zealand's transactions with the outside world.

The annual deficit was $15.25b, amounting to 8.5 per cent of gross domestic product. That was down from $16.11b and 9 per cent of GDP three months previously, but worse than the $14.21b and 8 per cent of GDP a year earlier.

The seasonally adjusted current account deficit for the March quarter was $2.68b, which was $1.04b smaller than the December quarter deficit of $3.72b.

The median forecasts in a Reuters poll of economists being for a current account deficit for the March quarter of $1.13b, and an annual deficit of $15.1b or 8.4 per cent of GDP.

ASB Bank economist Jane Turner said today's current account figures were "very close to expectations, and delivered few surprises".

The deficit had "turned a sharp corner" during the quarter, and she expected the improvements would continue in the short term.

"Behind this shift has been a steady annual improvement in the goods balance and investment income (on the back of falling profitability of NZ firms)," said Turner.

But future gains in the goods balance were likely to be limited, she said.
"The volatility in financial markets has caused some volatility in the financial accounts lately, mostly owing to valuation effects, these have since settled down as market volatility has abated somewhat."


Robin Clements, senior economist at UBS NZ, said the data was "marginally worse" than the market expected, but was unlikely to invoke much of a reaction.

The current account imbalance amounting to 8.5 per cent was "not good in anyone's book" said Clements, but the good news was that this position was expected to improve within the year, largely due to falling imports and reducing payments to foreign investors.

These two things reflect the bad current state of the New Zealand economy.

" Any export-led improvement in the current account is well into the future and depends upon the condition of trading partner growth (better, but still modest, in 2010) and the exchange rate, which the Reserve Bank has described as 'unhelpful'," said Clements.

The seasonally adjusted goods balance surplus of $863 million in the March quarter was a $967 m illion turnaround from the December 2008 quarter deficit. It was the first quarterly goods balance surplus in six years.

Seasonally adjusted goods imports fell by $1.35b, mainly caused by a fall in the value of imports of petroleum and petroleum products, transport equipment and passenger motor cars.

Exports of goods fell by $383m due to lower export prices, which more than offset an increase in the volumes of exported goods, SNZ said.

Total import prices fell 5.4 per cent in the latest quarter, as lower world commodity prices more than offset the effect of the New Zealand dollar depreciating.

It was the first fall in import prices since the September 2007 quarter.

Export prices fell 8.2 per cent in the March quarter, the largest quarterly fall since 1957.

The main driver behind the fall in export prices was dairy product prices, which fell 20.5 per cent, the largest quarterly fall since 1950, but following record high prices for dairy products in the December quarter, SNZ said.

The seasonally adjusted services deficit narrowed by $201m, to a deficit of $299m, due to a fall in imports of $121m and a rise in exports of $79m.

Less was spent on sea freight and a range of service imports, while $90m more was spent on travel service exports which measured the spending of overseas visitors to this country.

While the number of overseas visitors fell 1.5 per cent in the March quarter, that was offset by an increase in the average spending per person, which may be linked to the depreciation of the NZ dollar, SNZ said.

The investment income deficit of $3.27b million in the March quarter was $35m larger than the December quarter deficit.

Foreign investors' earnings in New Zealand fell for the third consecutive quarter, dropping by $158m, but that was more than offset by a $192m fall in New Zealand investors' earnings from abroad.

New Zealand's current account deficit was financed by a $2b net inflow of capital in the March quarter.

That net inflow of capital, combined with valuation changes of financial assets and liabilities of $7.2b, resulted in a $9.2b rise in New Zealand's net international debtor position from the end of December.

Valuation changes arise from changes in exchange rates and market prices of assets and liabilities.

At March 31 New Zealand's net international debtor position was $176.6b, amounting to 98.2 per cent of GDP, compared with $167.4b (93.2 per cent of GDP) at December 31.

- NZPA