Current Account Deficit Continues to Widen
The seasonally adjusted Balance of Payments current account deficit was $3,089 million in the September 2004 quarter,
according to Statistics New Zealand. The deficit increased $1,109 million from the June 2004 quarter to the September
2004 quarter, and represents the third consecutive widening of the deficit. For the year ended September 2004, the
deficit as a percentage of Gross Domestic Product (GDP) was 5.8 percent, compared with 4.8 percent for the year ended
Lower exports of goods combined with higher income in the form of profits and interest payments earned by foreign
investors in New Zealand were the main contributors to the widening of the current account deficit this quarter.
The $949 million fall in the value of goods exports in the September 2004 quarter was mainly due to a significant
decrease in export volumes. All the main categories recorded decreases in export volumes this quarter, with dairy
products (down 26.8 percent) recording the most significant fall. Expenditure by overseas visitors to New Zealand was
the major contributor to the $101 million increase in seasonally adjusted services exports in the September 2004
quarter. A decrease in the seasonally adjusted number of visitors to New Zealand was more than offset by an increase in
the average expenditure per visitor.
Higher income payments in the September 2004 quarter were the result of higher profits reported by New Zealand companies
that are wholly or substantially owned by foreign direct investors, and by increased interest payments to overseas
lenders. Of the higher profits, 76.9 percent were reinvested in the New Zealand companies. Higher interest payments this
quarter reflected an increased level of overseas borrowing. ƒnƒnThe current account balance for the year ended September
2004 was a deficit of $8,246 million, compared with a deficit of $6,774 million for the year ended June 2004, and $5,668
million for the year ended September 2003.
A current account deficit is an excess of payments over receipts. Financing this deficit is achieved primarily through
net inflows of foreign investment measured in the financial account of the Balance of Payments. Financing persistent
current account deficits through net foreign investment into New Zealand has resulted in the net debtor position
(international investment position) increasing. A net debtor position means that the level of foreign investment in New
Zealand (liabilities) exceeds the level of New Zealand's investments abroad (assets). At 30 September 2004, New
Zealand's net international debtor position was $118.2 billion, which is $7.5 billion (6.8 percent) higher than the 30
June 2004 net debtor position, and $11.0 billion (10.2 percent) higher than at 30 September 2003.
In the September 2004 quarter, valuation changes arising from the effects of an appreciating New Zealand dollar and
changes in the market value of assets and liabilities (for example, changes in share prices) contributed $2.6 billion to
the rise in the net debtor position. However, the most significant cause of the rise was a net flow of investment into
New Zealand of $4.9 billion. This completely financed the current account deficit.
Foreign investment into New Zealand mainly comprised overseas funding of domestic banks, and an increase in the level of
foreign holdings of New Zealand Government securities. This foreign investment into New Zealand of $13.4 billion
completely offset $8.5 billion of New Zealand investment abroad during the quarter. The increase in New Zealand
investment abroad was mainly from domestic banks lending abroad, and a rise in official reserve assets.