Small current account surplus in March quarter

1.00pm

New Zealand posted a better than forecast $174 million current account surplus in the March quarter, Statistics New Zealand said today.

It compares with a surplus of $267m in the March 2003 quarter, but economists had forecast on average a deficit of $173m.

The current account, also known as the balance of payments, measures New Zealand's dealings with the rest of the world including trade and "invisibles" such as debt payments.

The March year deficit was $5.70 billion, equating to 4.2 per cent of Gross Domestic Product (GDP).

The annual deficit has expanded from $4.32b in the March 2003 year, but today's number was not nearly as bad as had been feared.

Deficits for previous quarters were revised down so that the calendar 2003 deficit of $5.61b was estimated at only 4.2 per cent of GDP instead of 4.6 per cent previously.

The March 2004 year deficit was also 4.2 per cent against the average forecast by economists of 4.7 per cent.

Reserve Bank forecasts predicted the current account deficit to peak late next year at 6 per cent of GDP but that may now seem to be too pessimistic.

New Zealand's terms of trade have improved sharply and the global economic pick-up has lifted both prices and volumes for New Zealand's exports.

Statistics NZ said today that increased returns from exports and lower income payments to foreign investors on their New Zealand assets were the main contributors to the improved balance.

These were offset by rising imports of goods, a fall in spending by tourists and lower receipts of non-resident withholding tax, reflecting lower dividend payments abroad.

Export receipts were driven by higher volumes, particularly for meat.

The appreciation of the New Zealand dollar during that quarter -- when it peaked in mid-February at over US70c -- reduced the New Zealand dollar prices received.

That also lowered import prices and helped reduce import volumes.

Overall, the value of goods exported rose $402m, or 5.6 per cent and the value of goods imported rose $185m, or 2.5 per cent.

Tourism revenue fell $149m from the December quarter with the average time spent by each tourist falling.

Income earned by foreign investors from their New Zealand investments fell by $306m, due to a fall in profits by New Zealand companies.

Dividends also fell following big rises in the December quarter.

New Zealand's foreign debt position deteriorated yet again -- by $1.8b to $107.5b.

Assets and liabilities rose but liabilities rose faster as banks funded their lending activity by borrowing abroad.

New Zealand has a structural problem with its current account because of lack of saving in New Zealand to fund investment.

Even at its low point in the recent cycle the deficit only fell to $2.3b.

It last peaked in March 2000 at 6.7 per cent of GDP while the previous peak in June 1997 was 6.9 per cent of GDP.

Australia and the United States are also struggling with large deficits.

The influential Economist magazine this week focuses on "How to slay America's monster trade gap".

The US deficit hit 5.1 per cent of GDP and the Economist suggested a sharp fall in the US dollar would be required to correct it.

That was likely to cause problems for New Zealand if the kiwi rises despite New Zealand's substantial current account problems, the magazine said.

UBS economist Robin Clements said he was "dumbfounded" by the data.

"It's a big surprise, I don't know what's going on within the numbers to see where it's coming from but I guess the upshot is a big plus for the currency.

"The ability to fund that current account (deficit) will be not quite as difficult, because it's not quite as big as we thought."

- NZPA