Rises in tourism, exports lower deficit

By BRIAN FALLOW economics editor

Balance of payments figures for the December quarter were less ugly than expected, thanks to a lift in tourism earnings and higher export volumes.

The current account deficit - a measure of what New Zealand earns from the rest of the world through trade and investment and what the rest of the world earns from us - was $5.936 billion in the last calendar year, up only $33 million on the year ended September.

That was better than analysts had expected; their estimates ranged from $6.1 billion to $7 billion.

It equates to around 4.5 per cent of gross domestic product, which is a little below the average ratio of 4.7 per cent over the past 10 years.

But the legacy of decades of such deficits is a net debtor position to the rest of the world of $101 billion, which is about $25,000 per capita and is equivalent to nine months of output from the economy - a very high level by international standards.

In the December quarter travel services exports were up $201 million or 12.9 per cent on September largely due to more tourists arriving, staying longer and spending more.

The Lord of the Rings premiere and waning concerns about Sars might have contributed, Statistics New Zealand suggests.

Exports of goods rose 1.8 per cent or $128 million in the quarter as an increase in volumes (especially of dairy products) more than offset lower export prices in New Zealand dollar terms.

Imports were only 0.7 per cent ($48 million) higher as an increase in volumes was almost entirely offset by lower prices.

The investment income deficit, the cost of servicing that $101 billion in net external liabilities, was $1.7 billion for the quarter, making $6.7 billion for the year.

An unusually large $1.5 billion was paid out in dividends from foreign direct investment (FDI) in the quarter.

The figure is likely to have been boosted - Statistics New Zealand will not say - by the $575 million dividend paid from National Bank to Lloyds TSB as part of its sale agreement with ANZ.

Despite the pause in the December quarter, economist expect the current account deficit to get worse before it gets better, hitting 5.5 or 6 per cent of GDP, under the influence of a buoyant domestic economy and a high dollar.

But preliminary merchandise trade figures for last month were also better than expected.

Exports exceeded imports by $136 million, or 5.4 per cent of exports, despite the fact that imports were swollen by several large aircraft, worth more than $170 million.

Exclude the aircraft and the surplus equated to 12 per cent of exports, well above the 8 per cent which is normal for a February.

The merchandise trade deficit for the year ended February was $3.5 billion, $145 million less than for the year ended January.

The trade deficit had generally been declining since mid last year, Statistics New Zealand said.