Inbound tourism helps reduce New Zealand's current account deficit by more than $7 billion in 2023

New Zealand’s current account deficit was $27.8 billion, or 6.9% of gross domestic product (GDP), in 2023 according to the latest Statistics NZ data released on Wednesday. 

Inbound tourism was key in reducing the deficit. Travel exports increased by $6.8 billion to $12.9 billion in 2023 and boosted related sectors such as air transportation exports. 

Paul Pascoe, a senior manager at Stats NZ, said visitors from Australia, the USA, and the UK had been spending money on accommodation, meals, car rentals, and holiday activities.

This inflow of money contributed to a $9 billion overall increase in services exports and helped shrink the deficit as services imports only rose by $2.9 billion.

A deficit shows the country has been spending more overseas than it has been earning, and the comparison to GDP shows its size in the context of the overall economy. 

Part of the increase in services imports was due to an increase in reinsurance costs after the extreme weather events in early 2023, such as Cyclone Gabrielle

The goods deficit narrowed by only $300 million, to $12.2 million, as both imports and exports decreased by $3.5 million and $3.9 million, respectively. 

Exports of meats, dairy, and wood products dropped significantly, while less production goods, such as chemical products and fertilisers, were imported. 

The primary income deficit measures how much overseas investors are earning from investments in New Zealand relative to how much local investors are earning overseas. 

That deficit widened by $800 million to $12.5 billion during 2023 with interest payments to overseas portfolio investors roughly three times higher than NZ received from overseas.

Stats NZ’s seasonally adjusted quarter current account data showed the deficit had actually worsened by $200 million during the final three months of 2023.

Improvement on 2022

The deficit hit a historic high in 2022 at $33.4 billion, or 8.8% of GDP, as exports were hurt by bad weather, labour shortages, and border restrictions while overheated demand boosted imports.

It has been gradually improving since then as the tourism sector has recovered and high interest rates slowed consumer demand for imported goods. 

Credit rating agencies have been concerned about the size of the deficit and might have considered downgrading New Zealand’s sovereign credit ratings had it got much worse. 

New Zealand’s net international investment liability rose $11.8 billion in the three months ended December and finished the year at $209.6 billion, or 52% of GDP.