Foreign firms repatriating money from New Zealand companies they own has helped push this country to its biggest annual current account deficit for almost 10 years. That and the rising cost of imported fuel.
The annual deficit widened to $10.5 billion for the year ended September 30, or 3.6 percent of gross domestic product. That compares with an annual deficit of $7.4 billion, or 3.3 percent of GDP, the year before, Statistics New Zealand said. Economists had anticipated the widening shortfall, projecting an annual deficit of 3.6 percent of GDP in a Bloomberg poll.
But the cause of the deficit isn’t what many people might think – New Zealand importing more goods than we export. In fact, our goods and services trade balance remains in the black, with the country earning slightly more from exports (meat, dairy, logs etc), than we spent on imported goods. Albeit that the surplus narrowed to $451 million from $2.6 billion a year earlier.
Stats NZ said it was the ‘income’ component of the current account – the income New Zealanders earn overseas against what foreigners earn in New Zealand – which was a big factor in the wider deficit.
“The income that foreign investors earned in New Zealand increased more than the income New Zealand investors made abroad,” international statistics senior manager Peter Dolan said.
According to Stats NZ, income from foreign-owned New Zealand companies was up $1.6 billion on the year at $19.4 billion. Having highly-profitable Australian-owned banks helps, but isn’t the main reason for the increase, Dolan says.
“Despite large bank profits, it was non-financial companies leading the increase,” he says.
The $11 billion income deficit was up from a $10 billion shortfall a year earlier. That includes the primary income component of domestic versus foreign earnings on investments, and the secondary income component that covers international transfers such as non-resident withholding tax.
In 2009, the current account deficit dropped from a record peak of 7.8 percent of GDP to 2.2 percent and has hovered between 2 percent and 4 percent since.
On a quarterly basis, the unadjusted deficit was $6.1 billion in the three months to September 30, versus a revised second-quarter deficit of $1.6 billion, Stats NZ said.
The goods balance widened to $3.2 billion deficit in the September quarter from a surplus of $193 million in the June quarter. The services balance showed a deficit of $300 million versus a surplus of $912 million.
In seasonally adjusted terms, however, the current account deficit was $2.56 billion in the September quarter, down from $2.66 billion in the June quarter.
According to Stats NZ, the seasonally adjusted goods deficit was $997 million in the September quarter, $343 million narrower than in June. This was due to a $750 million rise in goods exports as the value of dairy, meat and log exports rose. Crude oil led the $407 million increase in goods imports, it said.
New Zealand’s net international liability position was $156.2 billion, or 53.7 percent of GDP, versus $154.5 billion at the end of June or 53.6 percent.
The value of New Zealand’s international assets was $269.2 billion as of Sept. 30, versus $270.5 billion at the end of June. The fall was due to a withdrawal in assets held abroad and financial derivative valuation changes.