Annual current account dives anew

Monday January 07, 2013 Dr Amapola Generosa

New Zealand’s current account remains in red, with annual deficit increasing to $9.9 billion from $8.8 billion in the same quarter last year.  The annual deficit is 4.8% of GDP, this compares with the 3.3% and 4.4% of GDP recorded in the same quarter in 2010 and 2011.




As the chart above shows, New Zealand has had deteriorating trade performance with both goods and services.  In the previous three quarters, we have seen exports have lacklustre performance, with both values and volumes falling due to weaker demand and softer prices overseas. 

The service export sector also had a less than impressive performance this year.  Export education had been strong earner ($2.3 billion in the year to September) but tourism had not been racking up receipts. 




There were also more New Zealand direct investments abroad than foreign direct investments in New Zealand.  Income from foreign investment in New Zealand for the year ended September 2012 was $15.6 billion, compared with $5.4 billion income from New Zealand investment abroad.


We would have expected the NZ dollar to respond to these trends.  Unfortunately, the NZ dollar had remain overvalued, almost untouchable, it seems.  With weaker demand overseas, exporters will continue to bear the brunt. 

With the economy’s income deficit, it is no longer surprising that that our international investment position is barely improving.  New Zealand’s net foreign debt at 30 September was still 72% of the GDP or $148 billion. 


This compares to $146 billion at the same period last year.  With these concerning trends and weak GDP growth (0.2% in September Qtr), the NZ economy remains vulnerable to international financial disturbances.