Annual Current Account Deficit Continues Growth

Annual Current Account Deficit Continues Growth

The seasonally adjusted current account deficit decreased by $147 million in the June 2005 quarter to reach $3,022 million, Statistics New Zealand said today. However, the current account deficit for the year ended June 2005 has widened to $11.9 billion, compared with a revised March 2005 year deficit of $10.9 billion and a $7.2 billion deficit for the June 2004 year.

The current account measures the value of New Zealand's international transactions in goods, services, investment income and transfers. The main factors contributing to the June quarter's narrower current account deficit were an increase in receipts from services exports, and a fall in income payable to foreign investors in New Zealand. The fall in income payable this quarter however, was not enough to offset an overall increase in the previous three quarters of the June 2005 year.

The main factors contributing to the wider year-ended current account deficit were an increase in income payable to foreign investors in New Zealand (due to higher reported profits), and an increase in the imports of goods. The value of petroleum and petroleum products imports has
been a significant contributor, rising 32.5 percent between the June 2004 and 2005 years.

When an economy runs a current account deficit, it must be financed by increasing foreign liabilities, reducing foreign assets, or a combination of both. These flows are measured in the financial account of the Balance of Payments. In the June 2005 quarter, New Zealand primarily funded the current account deficit through reinvested earnings of foreign-owned New Zealand subsidiaries of $1.5 billion and a withdrawal of capital from New Zealand subsidiaries abroad of $1.1 billion. Transactions in debt securities, and loan repayments on both sides of the financial account, mainly by the banking sector, largely cancelled each other out.

At 30 June 2005, New Zealand's net International Investment Position was $124.4 billion. This consisted of foreign investment in New Zealand of $222.4 billion and New Zealand investment abroad of $97.9 billion. In terms of the size, this means a debt of $30,355 for every New Zealander, compared with a $27,483 debt at 30 June 2004. @

As part of an ongoing quality improvement programme initiated in May 2004, Statistics New Zealand has made significant revisions to the Balance of Payments and International Investment Position statistics. These revisions are aimed at improving the analytical value of the statistics by reducing the balancing item, net errors and omissions.

Geoff Bascand

Acting Government Statistician

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