Tuesday 22nd September 2009 |
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New Zealand's external accounts improved dramatically in the June 2009 quarter, with the balance on current account for the year to June of $10.614 billion coming in at 5.9% of gross domestic product, compared to 8.1% of GDP in the March 2009 year.
The kiwi dollar continued its run up, gaining around 1% to US71.35 cents immediately after the announcement, which gives the country its smallest current account gap since September 2004 and was driven in part by falling profitability among foreign-owned banks operating in New Zealand.
Global and domestic recessions continued to drive improvements in New Zealand's debit to the rest of the world, with lower imports offsetting falling export receipts which, in turn, reflected a sharp fall in dairy commodity prices.
Income from offshore investment in New Zealand fell sharply also, although the largest driver in the June quarter was a $2.008 billion reduction in the investment income deficit, reflecting weak earnings from New Zealand assets for foreign investors.
For the June quarter, the current account deficit was $612 million, compared with a March quarter deficit of $2.12 billion, while the seasonally adjusted goods balance was a surplus of $822 million, unchanged from March.
Exports of goods fell $771 million, mainly due to falling prices, especially for dairy products, which more thabn offset an increase in expoort vlumes, Statistics New Zealand said. Goods imports fell $772 million as both prices and volumes off imported goods decreased.
In actual dollar terms, the current account in the three months to June was a cash surplus of $124 million - the first recorded since the March 2003 quarter. June quarter surpluses are unusual, and this one reflects a $661 million tax payment recorded by the Bank of New Zealand after losing a major tax battle at the High Court.
New Zealand's net liabilities position also improved marginally, with net debt running at $171.6 billion, or 95.2% of GDP, compared with 96.4% of GDP at the end of March, driven mainly by the appreciation of the New Zealand dollar and the rising international sharemarkets.
"Foreign investors earned $2,068 million on their New Zealand investments in the June 2009 quarter," said Statistics NZ. "This is the lowest level since the March 2001 quarter.". The fall in direct investment income was driven by a decrease in the profitability of the domestic banking sector.
Income earned by non-resident direct investors on their New Zealand subsidiaries was $553 million in the June 2009 quarter, the lowest level since this time series began in the June 2000 quarter.
ASB chief economist Nick Tuffley warned against expecting the improving trend to continue strongly.
"Much of the momentum from these recent drivers is tapering off," he said. "We expect the annual deficit to shrink further in the second half of 2009, but to then rebound to around 6-7% of GDP beyond the temporary tax blip. The trade balances will struggle to lift further until the global economic recovery becomes firmer."
The current account deficit was still large and would remain a risk "as well as a prod for changes in economic policy", Tuffley said.
Businesswire.co.nz
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