Current account deficit widens to $5.0 billion

New Zealand’s seasonally adjusted current account deficit widened to $5.0 billion in the March 2021 quarter, Stats NZ said today.

Prior to the March 2021 quarter, the largest deficit reported was $4.3 billion in the June 2008 quarter during the global financial crisis.

The annual current account deficit was $7.2 billion in the year ended March 2021 (2.2 percent of GDP).

Rise in imported goods drives New Zealand into a goods deficit

For the first time since the March 2020 quarter, the value of imported goods was larger than the value of exported goods. This resulted in a goods deficit of $1.5 billion.

In the March 2021 quarter, seasonally adjusted goods imports rose by $1.3 billion, reaching $16.0 billion. A wide range of goods contributed to this rise with consumption goods being the largest contributor.

Meanwhile, seasonally adjusted goods exports fell by $251 million to $14.5 billion.

“The overall value of imported goods has recovered to pre-COVID-19 levels, but the value of exported goods has lagged behind. This is why we are seeing the current account deficit widen so significantly,” international statistics senior manager Darren Allan said.

Services deficit continues to grow

New Zealand’s seasonally adjusted services deficit was $1.6 billion, $945 million wider than the December 2020 quarter.

“Rises in services imports and falls in services exports contributed to the widening of the deficit,” Mr Allan said.

Seasonally adjusted services exports fell for the second quarter in a row. Compared with last quarter, services exports fell by $716 million to $2.7 billion. Conversely, seasonally adjusted services imports rose by $228 million, to $4.2 billion.

The value of services exports and services imports remain well below pre-COVID-19 levels. Compared with the March 2020 quarter, service exports were down $3.7 billion, while service imports were down $1.5 billion.

Smallest net international investment liability position since 2018

The international investment position, or the difference between New Zealand’s financial assets and liabilities with the rest of the world, changed significantly between 31 December 2020 and 31 March 2021. New Zealand remained in a liability position, meaning New Zealand has more liabilities with the rest of the world than assets. However, this liability position narrowed by $17.4 billion to $160.9 billion. New Zealand has not had a liability position this small since September 2018.

“The liability position is the smallest it’s been in a couple of years, but what’s really interesting is how much it shrank this quarter. It’s the biggest quarterly change in New Zealand’s liability position in over 20 years,” Mr Allan said.

Market price changes reduce net liability position

Changes in the local and global financial markets affected the value of our international assets and liabilities. International equity markets performed well this quarter driving up the value of New Zealand’s assets by $5.8 billion. Meanwhile, New Zealand equities underperformed compared to most global counterparts. This poor performance drove down the value of our liabilities by $6.0 billion.

“More simply, the value of international shares held by New Zealand resident investors rose. At the same time, foreign investors saw the value of their shares in many NZX-listed companies fall this quarter,” Mr Allan said.

The net market price changes resulted in a $11.8 billion narrowing of the overall net liability position.