NZ reports massive balance of payments deficit

New Zealand had a massive $3.11 billion balance of payments deficit in the December quarter, Statistics New Zealand reported today.

Economists had on average forecast the figure, also known as the current account, measuring all New Zealand's dealings with the outside world, at $2.653 billion.

The annual deficit of $9.39 billion was the highest on record in nominal terms but as a percentage of Gross Domestic Product has been worse. It equated to 6.4 per cent of GDP. It has deteriorated from $5.63 billion, or 4.2 per cent of GDP, a year ago.

The annual deficit was higher at 6.5 per cent of GDP in March 2000 quarter and during the 1980s climbed over 8 per cent.


The New Zealand dollar fell quarter of a cent shortly after the announcement.

BNZ market economist Dean Ford said his bank saw no reason to alter its prediction that the deficit would swell to nearly 8 per cent of GDP by mid next year.

Concern about the size of the US current account deficit has been behind the weakness of the US dollar, but figures out last week showed its deficit only at 6.3 per cent of GDP.

Earlier this month, Reserve Bank Governor Alan Bollard said New Zealand's current account deficit had been significantly worse in the past without resulting in international credit rating agencies downgrading New Zealand's credit rating.

He noted the US was grappling with a budget deficit as well while the Government here was running a considerable surplus.

However, he said such the current account deficit was unsustainable and that was why the RB expects the currency to come down "to more normal levels". The kiwi was today off record post float highs of US74.75c hit in the last week and trading just below US73c.

Seasonally adjusted, the December quarter deficit was $2.51 billion compared with $2.96 billion in the September quarter and against $1.28 billion in the December 2003 quarter.

SNZ said the main factors contributing to the wider annual deficit were an increase in dividends paid to foreign investors due to higher profits of New Zealand companies and an increase in imports.

During the quarter, an increase in export receipts, higher earnings of New Zealand-owned companies abroad and a fall in income payments to foreign investors helped narrow the seasonally-adjusted deficit.

There was a $5.5 billion increase in foreign investment in New Zealand during the December quarter with foreign borrowing by banks, the Government and the private sector all contributing.

New Zealand's net debt position was the outside world increased by $17.4 billion over the year to $123.5 billion.

Some $94.5 billion (64.9 per cent of GDP) of that comprises net borrowing while the value of New Zealand ownership of overseas shares less foreign ownership of New Zealand shares was minus $29 million.

Nearly all the annual increase in foreign borrowing -- $10.8 billion of the $14.1 billion -- was done for New Zealand's banking sector.

Part of the increased bank borrowing from abroad was used to fund mortgage lending in New Zealand, SNZ said.

- NZPA