Current account deficit narrows to $1.9 billion

New Zealand’s seasonally adjusted current account deficit narrowed to $1.9 billion in the December 2019 quarter, Stats NZ said today.

This is the smallest deficit since the September 2017 quarter.

While all components of the current account contributed to the smaller deficit this quarter, a $574 million increase in exports of goods was the main driver. Dairy products led the rise, followed by exports of meat. A significant part of this increase was exports to China.

The current account balance records the value of New Zealand’s transactions with the rest of the world in goods, services, and income. It is an important indicator of the economy’s health. New Zealand has a current account deficit when we spend more than we earn from our transactions with the rest of the world.

Over the last 20 years, the seasonally adjusted services balance has been the only component consistently in surplus. This means we earned more from services exports than we spent on services imports. This has been largely driven by the exports of travel services – the amount international visitors and students spend while in New Zealand. This accounted for $4.1 billion in the December 2019 quarter, 62 percent of total services exports.

Spotlight on travel

On 2 February 2020, the New Zealand Government placed temporary restrictions on entry into New Zealand for all foreign nationals travelling from or transiting through mainland China in response to the outbreak of COVID-19. The latest figures, from before the outbreak, showed that for the December 2019 year, 19 percent of spending by overseas visitors in New Zealand was by Chinese visitors and students (Goods and services trade by country: Year ended December 2019).

“China is our top trading partner and a key market for travel services,” international statistics senior manager, Peter Dolan said.

“Without visitors and students from China, New Zealand’s services surplus for the December 2019 year would have fallen from $4.2 billion to $1.2 billion and as a result, the annual current account deficit for the year ended December 2019 would have widened from $9.2 billion to $12.3 billion.”

China is also a significant contributor to our trade in goods accounting for 28 percent of goods exports and 20 percent of goods imports for the December 2019 year.

Other key trading partners include Australia, the European Union and the US, in the December 2019 year they accounted for over 42 percent of New Zealand’s travel services exports.

The impact of the travel restrictions that came into effect from 1:00am 16 March 2020, will be seen in subsequent quarters, see Major steps taken to protect New Zealanders from COVID-19 for more detail.

Key international economic indicators

Some of New Zealand’s key international economic indicators are assessed relative to GDP and are important to credit rating agencies and overseas lenders to New Zealand.

For the year ended December 2019, the current account deficit was $9.2 billion, 3.0 percent of GDP.

The net international investment position represents the difference between New Zealand’s assets and liabilities with the rest of the world. New Zealand has more liabilities than we do assets and so have a net liability position. At 31 December 2019, New Zealand’s net international liability position was $170.9 billion, 54.9 percent of GDP.

A narrower measure of a country’s external financial position is net external debt (excluding equity and financial derivatives). At 31 December 2019 net external debt was $151.9 billion, 48.8 percent of GDP.

Impact of COVID-19

The economic impact of COVID-19 on New Zealand will first appear in the balance of payments statistics in the March 2020 quarter, to be released 17 June 2020.

Some of the more recent impacts on trade and travel from the outbreak of COVID-19 at the start of 2020 can be seen in the following releases of provisional data:

• Provisional indications – effects of coronavirus outbreak on New Zealand trade with China
• Provisional international travel statistics.