Annual current account deficit falls $200 million with goods exports up $1 billion and service exports shrinking $900 million in March quarter

New Zealand's March year current account deficit weighed in at $27.6 billion, representing 6.8% of the gross domestic product (GDP), according to Statistics NZ.

This deficit was $5.4 billion lower than the same time a year ago, when it was $33 billion and equal to 8.5% of GDP.

A deficit means a country spends more abroad than it earns. Its size compared to GDP shows its significance in the context of NZ's overall economy.

In the March 2024 quarter, the quarterly current account deficit rose to $7.3 billion, up $300 million from the December quarter.

The seasonally adjusted services deficit increased by $1.1 billion in the same time period while exports of services dropped by $900 million. 

Stats NZ said this was mainly due to a decline in travel exports – including spending by international visitors while in New Zealand.

Paul Pascoe, a senior manager at Stats NZ said the seasonal peak in visitor spending was “less pronounced” than it has been in the past.

“Once seasonal factors were removed, the adjusted visitor spending fell,” he said.

According to Stats NZ, a seasonally adjusted time series helps tit see the “underlying picture” over a long period by removing seasonal changes. 

Stats NZ said its continuing to review how it adjusts for seasonal patterns after a period of “significant disruption” during Covid.

In March, the seasonally adjusted goods deficit narrowed by $393 million to $2.5 billion. Both imports and exports increased by $964 million and $571 million, respectively. 

Goods exports were driven by fruit, dairy, and logs and wood products while goods imports ramped up from consumption goods like clothing.

“Even though the goods deficit narrowed slightly this quarter, goods, services, and primary income have all been in deficit since the December 2020 quarter,” Pascoe said.

NZ's net international investment position, representing the difference between the country’s financial assets and liabilities with the rest of the world, decreased to $199.1 billion in the March quarter representing 48.7% of GDP.  This was down from $210.3 billion (52% of GDP) in the December 2023 quarter.

“In the March 2024 quarter, the increase in New Zealand’s international assets was mainly due to a combination of strong global stock market performance and a depreciation of the New Zealand dollar against major currencies,” Pascoe said.

In 2022, New Zealand spending overseas hit a record high due to bad weather, labour shortages, and strict border rules hurting exports, while robust demand fueled imports.

This all caused the deficit to hit a historic high of $33.4 billion, or 8.8% of GDP that year.

Since then, the deficit has gradually narrowed with the recovery of the tourism sector and higher interest rates dampening consumer demand for imported goods.

ANZ Senior Economist Miles Workman said in a note that the 6.8% annual current account deficit was wider than ANZ’s expectation of 6.7%.

It was also “much wider” than the latest forecasts from the Reserve Bank of New Zealand (RBNZ) and NZ Treasury. 

The RBNZ had predicted an annual account deficit of 6.4%, while NZ Treasury had forecast 6.3%.

“While New Zealand’s external position is improving, it’s still too far out of balance to call sustainable. Progress is expected to continue, but the economy remains vulnerable to a wide range of possible shocks (eg drought, global wobbles) that could keep us in unsustainable territory for longer,” Workman said.

“Combined with a soft growth outlook and wider-for-longer fiscal deficits, risks to our sovereign credit ratings are building.”