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Balance of Payments and International Investment Position: March 2016 quarter
Embargoed until 10:45am  –  15 June 2016
Commentary

Current account deficit decreases

New Zealand’s seasonally adjusted current account balance was a deficit of $1,495 million in the March 2016 quarter, $665 million smaller than the December 2015 quarter's deficit.

 

 

The smaller deficit in the latest quarter was due a decrease in the goods and primary income deficits. An increase in the services surplus also contributed.

Goods imports and exports fall

The seasonally adjusted goods balance was a deficit of $515 million in the March 2016 quarter, down $247 million from the December 2015 quarter's deficit. The value of both imports and exports of goods decreased in the latest quarter; however, goods imports decreased more ($506 million and $259 million, respectively).

The fall in goods imports was mainly influenced by fewer aircraft imports in the latest quarter than in the December 2015 quarter.

Decreases in exports of meat and dairy products led the fall in goods exports for the March 2016 quarter.

Services surplus increases

The seasonally adjusted services balance was a surplus of $1,139 million in the March 2016 quarter, up $166 million from the December 2015 quarter's surplus.

This is the first time New Zealand’s seasonally adjusted services surplus has reached over $1.0 billion since June 2004; it is the largest surplus on record.

The increase in the services surplus was driven by a $91 million increase in travel services exports. Both the number of international visitors and the spend per person were up in the March 2016 quarter.

New Zealand’s imports of services were $4.3 billion in the latest quarter, a $29 million increase from the December 2015 quarter. An increase in travel service imports led the rise in services for the March 2016 quarter.

See Goods and Services Trade by Country: Year ended March 2016 for more detail on New Zealand's trade in goods and services for the year, including a by-country breakdown.

Primary income deficit lowest since September 2009 quarter

New Zealand’s primary income (mostly investment income) deficit decreased $562 million, down to $1,726 million in the March 2016 quarter. This is the largest quarterly decrease in the primary income deficit since the March 2010 quarter.

The smaller deficit in the March 2016 quarter was driven by a fall in income earned from foreign investment in New Zealand, down $510 million to reach $3.6 billion. Investment income from New Zealand investment abroad was up $59 million, to $2.0 billion.

Lower income earned from direct and portfolio investment in equity and investment fund shares was the primary cause of the decrease in income earned from foreign investment in New Zealand.

Annual current account deficit decreases

The annual current account deficit was $7.5 billion (3.0 percent of GDP) for the year ended March 2016. This compares with a revised annual deficit of $8.0 billion (3.2 percent of GDP) for the year ended December 2015.

The smaller deficit for the March 2016 year was driven by an increase in the services surplus, as well as a decrease in the primary income deficit ($519 million and $494 million, respectively).

An increase in spending by international visitors to New Zealand (travel services) drove the increase in the services surplus in the latest year. Spending by international visitors increased $2.2 billion in the year ended March 2016, to reach a record annual high in spending ($13.3 billion).

The decrease in the primary income deficit and the increase in the services surplus were partly offset by increases in the secondary income and goods deficits. Both goods exports and imports fell, $255 million and $16 million, respectively.

Net inflow of investment

A $1.5 billion net inflow of investment occurred in the March 2016 quarter. Transactions of $4.3 billion increased New Zealand’s international liabilities (inflow). This was partly offset by transactions of $2.8 billion which increased New Zealand’s international assets (outflow).

The key movements driving the $4.3 billion increase in New Zealand’s international liabilities in the March 2016 quarter were:

  • Other investment liabilities (up $3.4 billion) – driven by New Zealand deposit-taking corporations (banks) increasing their loans (up $2.5 billion) and deposit liabilities (up $1.2 billion) with overseas lenders.
  • Direct investment liabilities (up $1.5 billion) – due to New Zealand direct investors borrowing from their overseas subsidiaries.
  • Portfolio investment liabilities (up $1.5 billion) – driven by foreign portfolio investors increasing their investment in shares in non-financial corporations, and borrowing by the general government.

The increase in liabilities was partly offset by financial derivative settlements of $2.2 billion.

The key movements driving the $2.8 billion increase in New Zealand’s assets held overseas in the March 2016 quarter were:

  • The official sector (Reserve Bank of New Zealand and The Treasury) increasing the value of reserve assets held overseas (up $2.5 billion) in the form of short-term debt securities.
  • Portfolio investment (up $1.5 billion) – driven by fund managers and general government increasing equity and investment fund shares, and deposit-taking corporations increasing their debt securities. The increases were partly offset by the general government sector (New Zealand Super Fund) decreasing its debt securities held overseas.

The increase in New Zealand’s international assets was partly offset by deposit-taking corporations receiving $1.2 billion as settlement of financial derivative contracts. This is captured as a reduction in our overseas assets.  

Net international liability position increases

New Zealand’s net international liability position was $157.0 billion (63.1 percent of GDP) at 31 March 2016, up from $151.9 billion (61.8 percent of GDP) at 31 December 2015. This is the largest net international liability position since 31 March 2009; however, as a percentage of GDP it is lower than the 63.5 percent recorded at 31 March 2015.

The value of New Zealand’s international liabilities increased more than our assets – $19.6 billion and $14.5 billion, respectively, between 31 December 2015 and 31 March 2016.

Market price changes increased the value of our liabilities in the March 2016 quarter by $2.6 billion, and decreased the value of our assets by $109 million. The NZX50 performed well relative to other indices in the latest quarter, meaning the value of New Zealand shares held by overseas investors (liabilities) increased.

Large financial derivative valuation changes pushed up the value of New Zealand’s international liabilities in the March 2016 quarter (up $10.9 billion). However, similar movements in New Zealand’s international assets (up $10.1 billion) meant this had little net effect on the international liability position.

The New Zealand dollar depreciated against some of our major trading partners over the quarter, increasing the value of our liabilities more than the value of our assets denominated in these foreign currencies ($1.1 billion and $0.6 billion, respectively). 

Net external debt increases

New Zealand’s net external debt position was $139.3 billion (56.0 percent of GDP) at 31 March 2016, $2.8 billion larger than the $136.5 billion (55.5 percent of GDP) at 31 December 2015. New Zealand’s external borrowing (up $7.2 billion) increased more than our external lending (up $4.4 billion), resulting in the widening of our net external debt position. This is the first increase in the net external debt position as a percentage of GDP since the December 2012 quarter.

 

 For more detailed data see the Excel tables in the 'Downloads' box.

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