The deficit between what we get from our exports and what we spend on imports has, on an annual basis, grown to its highest ever level.
Statistics New Zealand reported that our annual current account deficit to September was 7.9% of GDP, which beat the previous high of 7.8% recorded during the Global Financial Crisis in December 2008.
In dollar terms, the deficit between import spending and export receipts was some $29.7 billion, up by $13.3 billion from the year-ago figure.
In dollar terms the deficit is way higher than seen previously. For example that previous high of deficit to GDP from 2008 related to a dollar deficit of just $14.7 billion.
Big as Wednesday's deficit is though, it is actually probably slightly lower than economists expected - with expectations of around 8%. And economists do believe that the deficit will start to narrow again in future, with the re-opening of our borders bringing tourist dollars in, while Kiwis are expected to reduce spending in the face of the increasing interest rates.
Total imports of goods and services for the year ended 30 September 2022 were $104.6 billion, an increase of $21.5 billion from the year ended 30 September 2021.
Total exports of goods and services in the year ended 30 September 2022 were $86.5 billion, an $11.3 billion increase from the year ended 30 September 2021.
Stats NZ's institutional sectors senior manager Paul Pascoe said the widening in the annual current account deficit was mainly due to a $10.2 billion widening in the goods and services deficit.
"A current account deficit reflects that we are spending more than we are earning overseas. The size of the current account balance in relation to GDP shows its significance in the context of New Zealand’s overall economy," Pascoe said.
This rise in goods imports was mainly driven by petrol, diesel and aviation gas, and machinery equipment.
"Rising prices for some imported commodities like petrol, a falling exchange rate, and higher shipping costs all contributed to the annual increase in imports," Pascoe said.
"Dairy and meat were the key drivers for the increase in goods exports, with dairy prices continuing to rise in the year ended 30 September 2022," he said.
New Zealand’s net international liability position was $193.7 billion (51.9% of GDP) as at September 2022, which was $11.0 billion (or 6%) wider than at June 2022. Looking at the detail of that - New Zealand’s international assets were $356.1 billion as of September, which was $12.1 billion larger than at June 2022, while international liabilities were $549.8 billion, some $23.1 billion larger than at June 2022.
The net international investment position represents the difference between New Zealand’s financial assets and liabilities with the rest of the world. New Zealand has a net liability position as we have more liabilities with the rest of the world than we do assets.
In terms of just the quarterly figures, the seasonally adjusted current account deficit narrowed by $1.3 billion to $5.9 billion in the September 2022 quarter, from $7.3 billion in the June 2022 quarter.
Westpac acting chief economist Michael Gordon said the current account deficit is "a symptom of the overheating in the domestic economy".
"We are, for now, living beyond our means – we have not adjusted our spending patterns to either the loss of export income or the cost-induced surge in our import bill."
But he says next year will be a different.
"Visitor numbers should continue to pick up from here, judging by the trends in Northern Hemisphere travel. And more importantly, the conditions for a slowdown in domestic spending are already in place. Households with a mortgage will be rolling onto substantially higher interest rates in the coming months, which will inevitably eat into discretionary spending.
"As a result, we expect the deficit to narrow from here on, returning to a more sustainable level of around 3-4% in 2024."
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78 Comments
NZ can’t export land or the houses etc on them. Pictures scene, lightbulb moment in caucus. “Then the only answer is to import the market. Buyers needed aplenty, that is immigrants. Let’s give it a try. Open the borders pronto. Oh we’re doing that already are we.”
Some conundrum isn’t it. Again it is evidenced that NZ’s export earnings are dominated by that of the primary production sector. Yet if you ask those involved in the various industries there, believe the vast majority would say that this government is hell bent on driving down the earning power of those very same exports.
Total agree - they are also driving the dollar up, encouraging the growth of carbon credits (theoretical assets)....kill those producing real goods and put the consumers on steroids (vulchers feeding on once strong productive leaders - all be gone). It is a cliff top collapse created by idealists that have no idea of the real world.
Maybe we can base our economy on virtue and moral high ground, make kindness our main export.
Seriously though it makes a good case for being less dependent on imports. Either we develop our own oil fields or start building electric cars here something like that. Govt is keen to destroy our main exports so we are going to have to survive with less imports. It might not be the best idea but investing in manufacturing could be how we do it. We have an intelligent educated workforce that can more than just milk cows and pour drinks.
Which the govt could have intervened in given the strategic importance of oil. But decided not to. And now its scrambling to look at oil storage tanks across NZ.
Plus there once was a time where local "value add" was the aim. Apparently not with oil.
Look at the mess now. Did an amateurish knee jerk use of the strategic offshore stockpile. Now has a bad shipload of av gas being brought in. looks like some pretty crappy tarmac has been imported. What next?
The company never asked for Government intervention. If it's not economically viable for a private business to "value add" locally, then why would you think the Government could? Yes the Government has unlimited financial resources to throw at things, but taxpayers will pay for it somehow i.e. at the pump.
Yes the outcomes suck, but again that's on private businesses not the Government. Why are private businesses buying dodgy AV gas? Why are private businesses importing water based bitumen?
I'm not sure it's entirely on the private business. The refinery didn't make much money, but seems to have had positive externalities for the economy which are showing up now. The money they could make was regulated by the Government due to being a natural monopoly, so raising prices to an acceptable level wasn't really an option.
The business makes the rational decision for their owners and closes, converting into an import facility for refined goods. This makes the country more vulnerable - not the companies problem, but something the Government could have foreseen and intervened in some way. Either the allowed returns for the refinery could have been bumped up a little, the strategic aspects could have been subsidised, or the whole thing could have been nationalised.
I'm not convinced what the right course of action was, but there were options for the Government.
"The money they could make was regulated by the Government due to being a natural monopoly" how do you figure that? Wasn't the choice that the NZ fuel companies had either they could import refined fuel, or they could buy fuel from the NZ refinery? As I understood it, the refinery couldn't beat the cost of imported fuel so closed down.
Do you have a link regarding price controls in place that affected the refinery?
I can't find a nice straight-forward explanation of the margin calculation, but there's some information in old NZR annual reports, for example note 19 page 103 in this report (from when they were still refining). I believe it was largely pinned to refining margins in Singapore and both puts a floor and a ceiling on how much profit the refinery could make, and gave them little scope to just raise prices at will.
https://stocknessmonster.com/announcements/chi.nzx-350744/
"The refining margin (margin) generated by the Group is a key input to the calculation of the processing fee revenue which comprises 70% (2018: 71%) of the Group’s total operating revenue. Processing fee revenue is set as 70% of the gross refining margin generated, subject to a fee floor of $136 million (2018: $134 million), and margin cap of USD9.00 per barrel for each customer. This 70/30 split of the refining margin reflects the fact that Refining NZ’s customers bear the risks and associated costs of crude purchasing, the finance and currency costs and risks associated with maintaining crude, feedstock and product inventories, shipping and demurrage risks and guaranteeing a minimum processing fee.
The margin is calculated as the typical market value of all the products produced, minus the typical market value of all feedstock processed. The typical market value of products is determined by using quoted prices for the products in Singapore plus the typical freight cost to New Zealand plus product quality premia. The typical value of feedstock is determined by using the market value for crude oil and other feedstock at the point of purchase, plus the typical cost of freight to New Zealand.
Refining margin risk is the risk of volatility in the typical product and feedstock prices to which the Group is exposed. The Group’s revenue is likely to be impacted, favourably or unfavourably, during periods of market price volatility. The Group does not hedge this risk. The downside in the volatility of margin and foreign exchange risk is limited by the processing fee floor, which comes into effect if the total processing fee for a calendar year does not exceed a minimum value. The fee floor is subject to annual Producers Price Index (PPI) based escalation."
The other thing you will find in that report is the list of shareholders on page 54. The three largest owners gives you a clue on why most petrol stations sourced their product from NZR:
1 Mobil Oil New Zealand Limited 53,760,000 17.20%
2 Z Energy Limited 47,999,980 15.36%
3 BP New Zealand Holdings Limited 31,572,640 10.10%
Nzdan - you normally make quite well thought out comments. Why you are choosing to try and defend a bad decision made by the govt to save a few cents on the dollar for fuel companies and thereby putting NZ's national interest at risk, I don't know.
Australia made the decision to subsidise their refineries because they know that they are in an isolated part of the world that is dependent on the protection of the US Navy to keep worldwide shipping lanes open, and that it is best to be able to refine some of your own product if there are issues with shipping. We are no different to Australia in this respect but because the govt would prefer to spend billions on the control of state media and the privatisation of water instead we are now in a position where we used to be able to run a bad batch of aviation fuel through the refinery and now we can't.
Bad decisions have consequences. Labour is a bunch of amateurs that were saved by their initial response to Covid, have learnt nothing since and now the results of all the bad decisions are starting to pile up.
Never mind the state media control (presuming you are referring to the merger) - the government was happy to bail out private media companies. We all know why, but even if there was no nefarious 'he who pays the piper calls the tune' intent, how could anyone in their right mind think that propping up media is more important than securing the nation's energy supply? If the wage subsidy wasn't enough, then these outlets should have been allowed to fold.
Fair points. I'm not outright defending Labour's decision, but playing devil's advocate on the general consensus that Government should stay out of private business affairs. It's the private sector that has made this commercial decision to shut down the plant, because private business "does it better" than Governments.....
Maybe but within that their are what you could describe as industry & services essential to the function of the country. For example the Helen Clark government bought back Kiwi Rail & baled out Air NZ. The argument being that the country had to have these up and running to function even if they were running at a loss, so be it. Therefore on that basis it would have been an understandable decision to take over the refinery in order to ensure that NZ had a degree of control over this sector of its energy needs.
Let's make a list of industry and services essential to the function of the country that we can run at a loss to the taxpayer:
- Fuel Production/Refining
- Electricity
- Food
- Banking
- Transport
- Housing Construction
- Telecommunications
- Postal
Starting to sound a little communist to me.
Aye there’s plenty of rub in that. Once upon a time the BNZ was the largest trading bank in NZ but once rogernomics gave them some lending, open slather, they went bust. Air NZ has been bailed out twice I think. Bradford split up the electricity boards and Key’s next government sold parts off just as Labour had done with Telecom and then, Cunliff scuttled them. Regrettably none of these operations seem to be all that convincing in whatever ownership they are under. But yes a country must have power, water, transport, communications so what do you do. Give profit incentives such as SOEs or just let the bureaucracy run things without any accountability. Beats me, i have little confidence either way.
People will always focus on the negatives regardless, they'll never be pleased. Back to Marsden, let's say the Government did step in and save the day, 100% guaranteed the same group of people will be complaining incessantly about how much it's cost the taxpayer, why are governments stepping in, why have fuel taxes increased, oh there's an election in 2 years it's a bribe.
They gripe about the price of fuel, gripe about how much tax makes up fuel, and then gripe about fuel tax relief.
I agree. But government’s are there to shoulder the responsibility to ensure the nation has the infrastructure to manage its own business. Personally I had neither empathy nor regard for much of Helen Clark’s prime ministership, but she was certainly not short of substance and had the mettle to make the necessary calls as noted above for example. Your point is well taken but, and over simplistically admittedly, grumbling people would soon see circumstances differently if their transport wasn’t going anywhere.
How about "Having some dialogue with the public in order to refocus on the needs of the vulnerable and to also have a conversation on the needs of the marginalized of society so that we can all succeed whether we work or choose not to. And to reward the ram raiders even though this will send a message of encouragement to those considering taking up this profession."
Certainly, i am still in disbelief that such an educated person can make such a decesion.
I am sure he has been told to do that by his masters in the government otherwise, he is not uneducated to make that decesion of lowering the interest rates and printing free money in a country like NZ where economy was doing great and population is within control.
I guess the rewards the another 5-6 years of RBNZ governorship.
And also a strong indicator of a nation's economic competitiveness. Particularly in a high-cost economy, export industries hardly operate in isolation and require infrastructural capabilities, skilled workers, capital markets, public policy and tax support, public institutions among other underlying strengths.
Case in point, Greece, Portugal and Spain ran deep current account deficits in the years leading up to the GFC. Even Ireland and Italy saw their annual surpluses turn into deficits as the global recession approached.
I am surprised at how blase the experts and NZ managers (we wont call them leaders) are regarding this deficit - It seems to me it is at least as bad if not worse than the current inflation rate or cost of living crisis
It does look like a deficit that is Ok until we wake up and find its suddenly not
and I dont expect JA or even Robbo to understand given their training
As David Chaston said some weeks ago, 'the current account deficit does not matter until it does matter'.
And it sure does matter.
A fundamental issue is that export prices have been excellent but export volumes are essentially static.
Export prices are now looking wobbly.
At some stage the financial reef fish will come to understand that the NZD value is not sustainable and then they will all move together. But it is impossible to predict when that will happen.
Yes, we are very vulnerable.
KeithW
Didn't the Muldoon Government experience this same issue-only it continued for 10 years or so right into the Lange Govt. as the country limped along on a hope and prayer that somehow Primary Industry would win back their losses and "she'll be right". Finally took vastly expanded International Tourism of the 90's to make up the deficit. Sounds like the same savior is hoped for this time around.
The biggest factor in the turnaround was the increasing prices for food and fibre, starting with forestry in the 90s and then for food products starting around 2000. In the last 20 years we have been in the 'right sector'. This has helped cover for many structural weaknesses elsewhere in the economy. I acknowledge that tourism was also important - just as well given the amounts that Kiwis spend on overseas tourism themselves.
KeithW
Oh the joys of globalisation and free trade deals, we have just been opening ourselves up to be exploited by much larger economies and then stupidly selling off our businesses and assets to them.
The Overseas Investment Office must have worn its rubber stamp down to the handle by now.
I live in hope that NZ will change that next election, vote for anything by blue or red and make a historic shift in how NZ operates. The generational mindset has changed across the board with younger generations coing through, and although they may not have the experience and knowledge of their elders, they can see they've been sold down the river in many regards and they will vote for what benefits them, and not those with multiple houses who are already set for life.
No surprise, Labour is clueless when it comes to supporting businesses and the productive sector
They are failing in all core metrics: economy, healthcare, infrastructure, crime. I hear they are banning tobacco this morning for the next generation,
This reminds me of prohibition in the USA where they banned alcohol and basically handed power over to the mafia through the black market... as if we don't have enough problems with gangs in NZ right now and escalating violence including guns becoming more prevalent
Looking at the graph it looks like both red and blue went to the same school,
What you bean counters and realestate agents forget is that Labour represents the workers as in the word Labour. First and foremost is for people to keep their jobs. look at unemployment.
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