Current account gap widens on lower dairy, oil

The NZ dollar is predicted to soon breach US85c for the first time in 15 months, potentially making things tougher for NZ exporters. Photo / Supplied

New Zealand's current account deficit widened more than anticipated in the three months to December 31, clocking in at $10.5 billion for the 2012 calendar year, or 5 per cent of gross domestic product.

Contributing to the rise was an increase in dividends paid to foreign investors, although foreign earnings by New Zealand companies in the quarter reached a five year high. The balance of payments is a high level measure of the extent to which New Zealand is or isn't paying its way in the world.

Offshore borrowing by New Zealanders to fund the deficit saw net international liabilities rise to $150 billion, or 71.7 per cent.

Market expectations had been for an annual current account deficit at 4.7 per cent of GDP.

Other than foreign investors' dividend flows, the underlying drivers for the increase were falls in agricultural, oil and tourism receipts.

"Dairy prices were much lower than a year ago, while overseas spending has fallen from last year's boost by the Rugby World Cup," said John Morris, the balance of payments manager for Statistics New Zealand.

Dairy exports fell by $861 million in the December quarter, compared to the same period a year earlier, when global dairy prices were near record highs.

Meanwhile, imports were relatively flat. Oil production fell 22.6 per cent during the year as offshore fields such as Tui reduced output in line with expectations.

Income from direct investment by foreign investors in New Zealand was $2.051 billion in the December quarter, up from $1.966 billion in the September quarter.

"The banking sector reinvested the majority of their profits, while most corporate sector profits were paid out as dividends," the Statistics NZ commentary on the result said.

For the 2013 calendar year, total income from all foreign investment in New Zealand reached $15.3 billion, of which $6.8 billion was from foreign direct investment, where the investor owns 10 per cent or more of the company involved.

"In 2012, 62.9 per cent of profits were reinvested in New Zealand, compared with only 31.6 per cent in 2011," Statistics NZ said.

The department raised its estimated total international insurance claims from the Canterbury earthquakes by $300 million to $17.9 billion, of which $8 billion has been settled with overseas reinsurers, leaving $9.9 billion of claims outstanding.

Foreign direct investment earnings by New Zealand companies were $272 million for the quarter, the highest since December 2007, of which $123 million was repatriated to New Zealand.

For the December quarter, the seasonally adjusted current account deficit was $2.7 billion, up from $2.5 billion in the previous quarter.