Quarterly current account deficit narrows

The seasonally adjusted current account deficit narrowed to $2.5 billion for the September 2012 quarter, Statistics New Zealand said today. This compares with a deficit of $2.8 billion in the previous quarter.

The current account measures New Zealand's transactions with the rest of the world. A current account deficit means that the rest of the world earned more from New Zealand than New Zealand earned from overseas.

The smaller deficit this quarter was mainly due to a fall in profits earned by foreign-owned companies in New Zealand. These profits can be reinvested in New Zealand, or returned overseas as dividends.

"Although foreign-owned companies earned less in New Zealand this quarter, over $1.0 billion was still reinvested in New Zealand, the third quarter in a row that reinvested earnings have been at this level," balance of payments manager John Morris said.

A rise in insurance premiums partly offset the fall in profits earned by overseas-owned companies in the September 2012 quarter. Some insurance policies were renewed at higher premiums, which caused international insurance payments to increase by $84 million this quarter.

The annual current account balance was a deficit of $9.9 billion (4.7 percent of GDP) for the September 2012 year. This compares with a deficit of $8.8 billion (4.3 percent of GDP) for the September 2011 year.

The larger annual current account deficit was due to a $1.4 billion increase in imports of goods, particularly oil and cars. The rise in imports of goods was partly offset by a fall in the income deficit, as New Zealand-owned companies earned more profits overseas in the latest year.

New Zealand's net international liability position was $148.4 billion (71.2 percent of GDP) at 30 September 2012, relatively unchanged from 30 June 2012. A net inflow of funds into New Zealand was mostly offset by exchange-rate changes decreasing the value of New Zealand's international liabilities.

An inflow of funds from overseas is required to fund a current account deficit – New Zealand's overseas expenditure is funded by either an inflow of foreign investment from overseas, or a withdrawal of New Zealand's assets held abroad.

The net inflow of funds into New Zealand in the latest quarter featured $1.3 billion of reinsurance claim settlements relating to the Canterbury earthquakes. Over one-third of total overseas reinsurance claims from the earthquakes has now been settled.

See also:
Balance of Payments and International Investment Position: September 2012 quarter  –  Information release