Surge in exports narrows deficit

By BRIAN FALLOW economics editor

The improvement in New Zealand's balance of payments continued in the June quarter, propelled by a strong performance from the export sector.

The quarterly current account deficit - the difference between what we spend overseas and what we earn - was $297 million.

It was the best result for a June quarter since 1993, and put the annual deficit at $4.5 billion, or 4 per cent of gross domestic product.

That compares with a $5.4 billion annual deficit (4.9 per cent of GDP) in the March quarter and $7.4 billion (7 per cent of GDP) in June last year.

But economists say the deficit will start to widen again next year.

"It's encouraging to see such a good solid improvement," said ANZ economist David Drage. "But we are mindful that there is a very strong cyclical component in the recovery.

"We have had remarkable export growth over the past 18 months, based on strong prices and a weak dollar, while at the same time the domestic economy has been relatively subdued, moderating the demand for imports.

"That's the best of both worlds from a current account point of view, but we are not convinced it will continue much longer."

Export growth had slowed and that would get worse after the the attacks in the US, Mr Drage said.

In the June year, the balance on goods was a $3.1 billion surplus, compared with a deficit of $300 million in June last year.

The services balance (mainly tourism and air travel) was a deficit of $250 million, but that was still an improvement on the $400 millon deficit a year earlier.

The main negative influence was, as ever, the investment income balance - a deficit of $7.8 billion compared with $7.2 billion a year earlier.

The quarterly numbers showed a recovery in the amount New Zealanders earn on their investments overseas and a drop in the (much larger) amount foreign investors earn in New Zealand.

Of the $3.38 billion in profits earned by foreign-controlled firms in New Zealand, 68 per cent was taken out in dividends. In the previous year, the figure was 78 per cent.

Statistics New Zealand estimates exports in August were up 12 per cent on the same period last year, and imports were only 0.4 per cent up.