Current account gap shrinks on insurance losses

Photo / Simon Baker

New Zealand's current account deficit narrowed in the first quarter as earthquake-related insurance losses eroded foreigners' earnings from their equity investments and exports of dairy products and oil rose.

The deficit was $1.75 billion in the three months ended March 31, down from $2.85 billion in the final quarter of 2010, according to Statistics New Zealand.

The annual deficit widened to $8.3 billion, or about 4.3 per cent of gross domestic product, from a revised $8.04 billion, or 4.1 per cent of GDP in the fourth quarter last year.

The quarterly deficit was larger than the $1.1 billion average forecast in a Reuters survey and the annual gap came in lower than the $8.6 billion, or 4.4 per cent estimate.

The balance of payments figures highlight the variance in the New Zealand economy, where export industries are recording strong prices and volumes while overseas-owned local companies remitted slimmer profits.

The goods balance was a surplus of $842 million, up $232 million from the December 2010 quarter. Exports rose by $565 million in the latest three months, outpacing a $333 million increase in imports of goods, mainly reflecting fuel and transport goods.

The annual goods balance was a surplus of $3.4 billion, with exports rising by $5.4 billion and imports of goods rising $4.6 billion.

The income deficit for the March quarter was $2.35 billion, down from $3.2 billion in the fourth quarter. Foreign investors' earnings from equity investments in local companies fell by $1 billion while profits earned from New Zealand subsidiaries fell by $869 million.

The government statistician said the decline mainly reflected a drop in profits from underwriting losses incurred by the insurance industry from the Canterbury earthquakes.

New Zealand recorded a capital account surplus of $7.5 billion in the latest quarter, reflecting an estimated $7.6 billion of reinsurance claims from the February 22 earthquake.

Net international liabilities were $148.2 billion as at March 31, down $10.4 billion from the fourth quarter last year.