Stats NZ has a new website.

For new releases go to

www.stats.govt.nz

As we transition to our new site, you'll still find some Stats NZ information here on this archive site.

  • Share this page to Facebook
  • Share this page to Twitter
  • Share this page to Google+
Balance of Payments and International Investment Position: March 2008 quarter
Embargoed until 10:45am  –  26 June 2008
Commentary

Overview

The seasonally adjusted current account deficit was $3,527 million in the March 2008 quarter, $410 million larger than the December 2007 quarter deficit of $3,117 million. The increase in the deficit this quarter was due to a widening of the investment income deficit, combined with an increase in imports of goods. This increase was partly offset by a rise in exports of goods.

The investment income deficit, which is not seasonally adjusted, grew by $315 million this quarter. This growth was caused by a $346 million fall in income earned from New Zealand investment abroad, which was slightly offset by a $31 million fall in income earned by foreign investors in New Zealand. The decreased income from New Zealand investment abroad was mostly due to a fall in income earned by overseas subsidiaries of New Zealand companies.

The seasonally adjusted balance on goods was a deficit of $158 million this quarter, with exports of goods up $245 million and imports up $384 million from the December 2007 quarter. Both exports and imports of goods are at their highest levels ever recorded.

In actual dollar terms, the current account deficit was $2,155 million in the March 2008 quarter. The goods balance was a surplus of $295 million, the first actual dollar goods surplus for a March quarter since 2003. The March 2003 quarter was also the last time that the current account balance was a surplus in actual dollar terms. Since then, the current account balance has been in deficit, mainly due to the investment income deficit more than doubling from the March 2003 quarter to the March 2008 quarter.

For the year ended March 2008, the current account deficit was $13,787 million (7.8 percent of GDP), compared with 13,837 million (7.9 percent of GDP) for the year ended December 2007, and $13,521 million (8.2 percent of GDP) for the year ended March 2007. From the year ended March 2007, the goods deficit has decreased $1,083 million, while the income deficit has increased $1,260 million.

Graph, Quarterly Balance on Current Account.

In the March 2008 quarter, the current account deficit was financed by a net capital inflow of $2.0 billion. This inflow was made up of $7.8 billion of foreign investment in New Zealand, partly offset by $5.8 billion of New Zealand investment abroad. The key feature of the foreign investment in New Zealand was an inflow of debt in the form of securities and loans. This inflow was partly offset by New Zealand investment abroad in reserve assets, portfolio investment in shares and securities, and direct investment in overseas companies.

The net International Investment Position (IIP) showed a net debtor position (that is, liabilities exceeding assets) of $153.2 billion at 31 March 2008. This was $1.9 billion larger than the net debtor position of $151.4 billion at 31 December 2007 and $10.2 billion larger than the net debtor position at 31 March 2007. The increase from the December 2007 balance was driven by $2.0 billion net transactions measured by the financial account.

Trend

The current account balance trend shows the deficit getting smaller over the past year. However, the deficit remains at over $3 billion, predominantly due to the widening income and transfers deficit trend.

The main contributors to the long-term increase in the income and transfers deficit trend are growing profits made by foreign-owned New Zealand companies and interest payments on New Zealand's rising level of overseas debt. The income and transfers deficit has almost doubled since March 2002.

Offsetting the increasing income and transfers trend is the balance on goods and services, which is a surplus for the first time since the December 2003 quarter. The goods and services trend deficit has been decreasing since its peak in the September 2005 quarter, mainly due to increased exports of goods over this period.

Graph, Quarterly Component Trend Balances.

Goods

All references are to seasonally adjusted figures unless otherwise stated.

The goods balance was a deficit of $158 million in the March 2008 quarter, $139 million larger than the December 2007 quarter deficit. Exports of goods rose $245 million, while imports of goods rose $384 million, taking both series to record high values this quarter.

The biggest impact on the increase in export values for the March 2008 quarter was a rise in the value of dairy products. Dairy product prices increased by 19.7 percent (the largest quarterly increase since the September 1971 quarter), but this was partly offset by a fall in volumes. An increase in the value of meat was the other driver behind increasing export values, and it was mainly due to a rise in volumes.

The increase in the value of imported goods was mainly due to higher prices for petroleum and petroleum products. Within this category, price increases were recorded for all major items including crude oil and motor spirit. The volume of crude oil also rose significantly, while the volume of motor spirit fell. Volume movements within petroleum and petroleum products are often influenced by large irregular imports. The value of consumption goods imported decreased in the March 2008 quarter as both prices and volumes fell. However, the volume of consumption goods is still at its second-highest level for all quarters.

Balance of Payments (BoP) conceptual adjustments removed $424 million from the value of overseas trade imports for the March 2008 quarter, compared with $1,027 million for the December 2007 quarter. This meant that the value of imports, as measured by BoP, increased this quarter, whereas overseas trade data was relatively flat. Conceptual adjustments are made to exports and imports, and include such items as changes in oil stocks held abroad by New Zealand residents and goods that cross New Zealand's custom frontier without a change in ownership occurring. For further information, refer to the technical notes section of this release.

The goods balance was a deficit of $1,748 million for the year ended March 2008, compared with a deficit of $2,831 million for the year ended March 2007. Exports of goods have increased by $3.1 billion over this period, and imports of goods have increased by $2.0 billion.

Graph, Seasonally Adjusted Goods.

Services

All references are to seasonally adjusted figures unless otherwise stated.

The services balance was a surplus of $31 million in the March 2008 quarter, a $13 million increase from the revised December 2007 services balance. Exports and imports of services were flat over this period.

Exports of services increased $6 million over the quarter, mainly due to a rise in exports of transportation services. The number of visitors to New Zealand increased between the December 2007 and March 2008 quarters. However, visitors each spent less per person on average, which meant travel exports (which measures the expenditure of foreign tourists in New Zealand) were flat compared with the December 2007 quarter. Earnings for other business services fell this quarter, partly offsetting the increased transportation services earnings.

Similarly, there were offsetting changes in the value of imports of services this quarter, resulting in an $8 million fall. Expenditure by New Zealanders while travelling abroad (imports of travel services) rose $7 million, reflecting a small rise in the number of New Zealand residents travelling overseas. Decreases were recorded across most other service categories, with imports of legal and accounting services (down $27 million) and royalties and licence fees (down $15 million) the main contributors to the fall in total services imports. These categories are not seasonally adjusted. Partly offsetting these falls was a $22 million increase in imports of transportation services.

Investment income

The March 2008 investment income deficit of $3,580 million was $315 million larger than the December 2007 quarter deficit. The larger deficit was driven by a $346 million fall in earnings from New Zealand investment abroad. Foreign investor earnings from their investments in New Zealand fell $31 million compared with December 2007 quarter.

The prime cause of the fall in income earned from investments abroad was a fall in earnings by overseas subsidiaries of New Zealand companies. Income on equity from direct investment fell $298 million, from $431 million in the December 2007 quarter. The December 2007 quarter figure was the highest recorded since the September 1999 quarter. Interest earned from lending abroad by banks and fund managers fell in the latest quarter, while dividends earned from shareholdings in overseas companies rose.

Income from foreign investment in New Zealand was $4,369 million in the March 2008 quarter, compared with $4,400 million in the December 2007 quarter. Dividends paid by New Zealand companies to foreign portfolio investors fell, and the official and banking sectors paid less interest on debt securities that they issued. These falls were partly offset by a rise in income earned by foreign direct investors from their New Zealand subsidiaries, and more interest paid by banks on loans from abroad.

March 2008 quarter profits earned by foreign direct investors from their New Zealand subsidiaries were $2,072 million. The New Zealand subsidiaries paid out $2,231 million in dividends to their foreign direct investors. As dividends distributed exceeded profits earned in the quarter, retained earnings was negative $159 million – a withdrawal of investment from New Zealand companies by foreign direct investors.

Graph, Current Account Income.

The year ended investment income deficit continues to widen. At $13.1 billion in the year ended 31 March 2008, this deficit is $0.7 billion larger than in the December 2007 year, and $1.3 billion larger than in the March 2007 year. The growth in the deficit from the March 2007 year arose from a $2.4 billion rise in income paid to overseas investors partly offset by a $1.2 billion rise in earnings from New Zealand's investments abroad.

The growth in New Zealand's earnings from investments abroad over the year was mainly driven by increased interest earned from the official sector's foreign currency reserve assets abroad. New Zealand companies also earned more profit from their subsidiaries located abroad.

Significant features of the rise in income paid to overseas investors over the year were rising interest paid on overseas debt and increased profits earned by foreign direct investors from their New Zealand investments. The proportion of profits distributed overseas as dividends rather than reinvested in New Zealand was 90.4 percent in the year to March 2008, compared with 63.8 percent in the year to March 2007 and 42.0 percent in the year to March 2006.

Current transfers

Current transfers are offsetting entries to transactions where goods or services are supplied or received without there being an exchange of equal value in return, such as taxes or donations. The balance on current transfers was a surplus of $170 million for March 2008 quarter, an increase of $10 million from the December 2007 quarter surplus.

Current transfers into New Zealand were $485 million in the March 2008 quarter, down from $509 million in the December 2007 quarter. This decrease was due to fewer reimbursements for benefits paid overseas as well as a decrease in non-resident withholding tax (NRWT) received. NRWT is payable by foreign investors on their withholding income (such as dividends and interest) received from their investments in New Zealand. There is often a lag between dividends declared and NRWT, as the tax is not due until the month after a dividend is paid.

Current transfers out of New Zealand were $315 million this quarter, a decrease of $34 million. This decrease was mainly due to a fall in non-life insurance transfers combined with a decrease in official international aid and was partly offset by an increase in other transfers overseas.

Capital account

The capital account measures the value of assets transferred by migrants into, and out of, New Zealand, as well as the purchase and sale of intangible assets. In the March 2008 quarter, the capital account balance was a deficit of $204 million, $38 million wider than the December 2007 quarter deficit.

Inflows of capital transfers increased $10 million in the March 2008 quarter compared with the December 2007 quarter. A fall in the number of migrants from Australia was more than offset by increased arrivals from the rest of the world. Capital transfers out of New Zealand were up by $48 million this quarter, due to greater numbers of families emigrating from New Zealand to Australia.

Financial account and International Investment Position

Financial account (flows)

The current account deficit for the March 2008 quarter was financed by a net capital inflow of $2.0 billion. Foreign investment in New Zealand of $7.8 billion was partly offset by New Zealand investment abroad of $5.8 billion.

New Zealand investment abroad in the March 2008 quarter was made up of $2.5 billion of investment in reserve assets, $1.3 billion in portfolio investment abroad, $1.2 in direct investment abroad and $0.9 billion of other investment abroad.

The main feature of the transactions increasing reserve assets was investment by the Reserve Bank of New Zealand in short-term foreign currency instruments. Portfolio investment abroad was mainly by fund managers buying shares in overseas companies and New Zealand banks buying bonds and notes issued by overseas entities. This includes investment in Kauri bonds (discussed further in the Technical Notes section). Direct investment abroad featured New Zealand corporations acquiring ownership interests in overseas companies.

The March 2008 quarter inflows of foreign investment to New Zealand were significant across all three investment categories. The largest inflow was $3.9 billion of foreign portfolio investment, followed by a $2.3 billion inflow of foreign direct investment and a $1.6 billion inflow of foreign other investment.

Foreign portfolio investment was primarily driven by New Zealand banks issuing debt securities abroad, mainly in longer-term bonds. Foreign direct investment in New Zealand featured a $2.7 billion inflow of investment by New Zealand companies borrowing from their overseas parents. Some of this borrowing arose from capital restructuring. This restructuring is partly reflected in withdrawals of equity share capital. Foreign other investment featured New Zealand banks raising loans from abroad, partly offset by a $3.0 billion fall in foreign investor deposits in New Zealand banks.

Reconciling the March 2008 quarter financial account and the International Investment Position (IIP)

The reconciliation table below shows both the transaction and non-transaction causes of the shift in the net IIP from the opening and closing net positions for the March 2008 quarter. The term IIP is defined in the technical notes of this publication along with the associated term net debtor position.

NZ$(million)

Net IIP opening at 31 December 2007 Net financial account flows (transactions) Net exchange rate changes Net financial derivative valuation changes Net market price and other valuation changes Net IIP closing at 31 March 2008
-151,350 -1,999 288 337 -509 -153,233

At 31 March 2008, the net debtor position was $153,233 million, an increase of $1,883 million from 31 December 2007. The increase was mainly the result of financial account transactions during the quarter. This increase was partly offset by changes in the valuation of financial assets and liabilities, which reduced net liabilities by $116 million. Valuation changes arise from changes in exchange rates, market prices of assets and liabilities, changes in the market value of financial derivative contracts and other changes such as write-offs.

For the March 2008 quarter compared with the December 2007 quarter:

  • The New Zealand dollar appreciated against the USD and GBP, and depreciated against the AUD, JPY and EURO.
  • The NZSX 50 fell.
  • The following overseas share indices fell: All Ordinaries (Australia), S&P 500 (USA), Dow Jones (USA), and FTSE (UK).

In the March 2008 quarter, the largest valuation changes arose from falling values of stock exchange quoted company shares, both in New Zealand and overseas. The overall effect of changes in the market value of shares was to increase New Zealand's net liability position. This increase was more than offset by the combined effect of valuation changes arising from exchange rates, financial derivative contracts and other valuation changes.

International Investment Position

This commentary discusses the presentation of New Zealand's international assets and liabilities in table 10 (see the tables section).

At 31 March 2008, New Zealand's net debtor position of $153.2 billion was made up of $132.6 billion in international assets and $285.9 billion in international liabilities. The 31 March 2008 net debtor position was $1.9 billion (1.2 percent) larger than the 31 December 2007 position of $151.4 billion, and $10.2 billion (7.1 percent) larger than the 31 March 2007 position of $143.1 billion.

Graph, Net International Debt and Equity. Graph, International Investment Position.

The March 2008 quarter rise in New Zealand's net international liabilities was due to a $3.8 billion rise in net international debt. This rise was partly offset by a $1.9 billion fall in the net international equity debtor position.

From 31 March 2007, net international debt has risen by $14.0 billion (up 11.4 percent). Overseas debt is up $26.7 billion, partly offset by a rise in New Zealand lending abroad of $12.7 billion.

The banking sector held 79.6 percent of the total net international debt at 31 March 2008, compared with 74.7 percent at March 2007. Net international debt held by the corporate sector was 27.5 percent of the total at March 2008 compared with 31.7 percent a year earlier. The official sector (government and reserve bank) continues to be in a net overseas lending (asset) position.

Overseas debt with a time to maturity of one year or less was 53.5 percent of total overseas debt at 31 March 2008. This is similar to the 54.3 percent at 31 December 2007, and the 53.2 percent at 31 March 2007.

Next release ...

Balance of Payments and International Investment Position: June 2008 quarter will be released on 19 September 2008.

For technical information contact:
Peter Roche
Wellington 04 931 4600
Email: info@stats.govt.nz

Revisions

The tables below present a summary of revisions to the December 2007 quarter BoP and IIP major components, as a result of new or improved data.

Current and Capital Accounts

Component Previously published December 2007 quarter
$(million)
Revised
December 2007 quarter

$(million)
Magnitude of revision
$(million)
Current account credits 15,508 15,471 -37
Current account debits 18,917 18,883 -34
Current account balance -3,409 -3,413 -4
Goods credits 10,603 10,527 -76
Goods debits 10,957 10,955 -2
Goods balance -354 -428 -74
Services credits 3,286 3,300 14
Services debits 3,189 3,180 -9
Services balance 97 120 23
Income credits 1,109 1,135 26
Income debits 4,422 4,400 -22
Income balance -3,313 -3,265 48
Current transfers credits 509 509 0
Current transfers debits 349 349 0
Current transfers balance 161 160 -1
Capital account credits 243 243 0
Capital account debits 409 409 0
Capital account balance -166 -166 0

 

Balance of Payments Financial Account

Component Previously published December 2007 quarter
$(million)
Revised December 2007 quarter
$(million)
Magnitude of Revision
$(million)
New Zealand investment abroad 962 1,688 726
Direct investment -451 -412 39
Portfolio investment -144 621 765
Other investment 1,374 1,297 -77
Reserve assets 182 182 0
Foreign investment in New Zealand 4,274 5,586 1,312
Direct investment 249 109 -140
Portfolio investment 5,346 5,761 415
Other investment -1,321 -285 1,036

 

Net Errors and Omissions

Component Previously published December 2007 quarter
$(million)
Revised December 2007 quarter
$(million)
Magnitude of Revision
$(million)
Net errors and omissions 263 -319 -582

 

International Investment Position

Component Previously published December 2007 quarter
$(million)
Revised
December 2007 quarter

$(million)
Magnitude of revision
$(million)
New Zealand investment abroad 116,196 118,326 2,130
Direct investment 18,197 18,306 109
Portfolio investment 44,485 46,559 2,074
Other investment 21,973 21,919 -54
Financial derivatives 9,274 9,274 0
Reserve assets 22,268 22,268 0
Foreign investment in New Zealand 268,567 269,675 1,108
Direct investment 92,327 92,135 -192
Portfolio investment 90,884 91,180 296
Other investment 76,056 77,063 1,007
Financial derivatives 9,300 9,297 -3
  • Share this page to Facebook
  • Share this page to Twitter
  • Share this page to Google+
Top
  • Share this page to Facebook
  • Share this page to Twitter
  • Share this page to Google+