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New Zealand Economic and Financial Overview 2009

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Balance of Payments

Over the past five years, the current account deficit has fluctuated in a range of 4.1% to 9.3% of GDP. The deficit stood at 8.6% of GDP for the 12 months to 30 September 2008. A key feature of New Zealand's current account deficit is the large deficit on investment income, reflecting New Zealand's net foreign liability position.

In recent years, the current account deficit has been affected by changes in both the investment income balance and the goods and services balance. Fluctuations in the investment income balance have occurred due to profits accruing to foreign investors in New Zealand moving with the economic cycle in New Zealand and variable profits earned by New Zealand investments offshore. The investment income deficit has been increasing since 2004 resulting in a widening current account deficit over the same period. With weaker international economic conditions, the investment income deficit can be expected to decline with weaker profits earned in New Zealand by direct investors.

The goods and services balance has varied due to the effects of drought, commodity prices, oil price changes, some large one-off imports and currency movements, as well as New Zealand's demand for imports and international demand for New Zealand exports. The impact of the stronger currency on export earnings and strong domestic growth on import demand, together with an increase in the investment income deficit due to strong profits of foreign-owned firms, led to the current account deficit reaching 9.3% of nominal GDP in the year to 30 September 2006. More recently, however, exceptionally strong agricultural export receipts led to a narrowing in the current account deficit to 8.6% of GDP in the September 2008 year despite large capital imports such as oil production equipment. The annual deficit is expected to increase in the short term as a result of past high oil prices, but then decline due to higher export receipts, reflecting the depreciating New Zealand dollar and recovering world economy, and lower import payments from softening domestic demand.

Balance of payments statistics are compiled by the Government following principles set out by the IMF in the 5th edition of the Balance of Payments Manual.

Balance of Payments
Year ended 31 March
(dollars amounts in millions)
2004 2005 2006 2007 2008

Current Account          

Export receipts           29,054 31,114 31,581 35,636 38,720
Import receipts           30,246 33,343 35,685 38,464 40,464
Merchandise balance       -1,192 -2,228 -4,104 -2,828 -1,745
Services balance          1,595 1,034 397 377 189
Investment income balance -7,358 -9,384 -11,081 -11,964 -13,388
Transfers balance         237 311 195 629 732
Current account balance   -6,718 -10,267 -14,593 -13,785 -14,211
Deficit as % of GDP       -4.8 -6.8 -9.3 -8.3 -8.0

Financial Account (net)

Foreign investment in NZ  13,858 14,032 10,376 24,082 27,481
NZ investment abroad      8,371 3,192 -3,870 10,980 12,404
Reserves                  2,327 -914 4,850 6,744 5,763
Financial account balance 5,487 10,840 14,246 13,102 15,077

Capital Account          

Balance of Capital Account 723 108 -326 -457 -773

(1) Provisional.

Balance of Payments
Balance of Payments.
Source: Statistics New Zealand

 

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