The deficit between what we earn overseas and what we spend as a country has remained virtually the same, which is not particularly good news.
Statistics NZ reports that in the 12 months to June our current account deficit was $27.8 billion, which is slightly worse than the $27.6 billion in the 12 months to March 2024.
Our deficit has remained at 6.7% of our GDP, which runs contrary to the expectations of economists that the deficit would shrink.
ANZ economists noted that the deficit remained "unsustainably wide".
The extent to which we are spending more than we earn in the world has attracted the attention of credit rating agencies, who have previously stressed that they want to see that deficit coming down or else it could cause our sovereign debt ratings to come under review.
The deficit hit a peak of 9.4%* of GDP in 2022 and had been falling slowly since. (*Stats NZ has just revised this figure up from the originally reported 8.8%.)
ANZ economist Henry Russell and senior economist Miles Workman said with no improvement in the annual current account deficit in the latest period, "New Zealand could be facing a long path back towards sustainable levels".
"We remain of the view that the narrowing in the deficit will be gradual, leaving us vulnerable to shocks and under the watchful eye of sovereign credit rating agencies for some time yet," they said.
Stats NZ reported that the deficit in the June 2024 quarter was $7.2 billion, which was $269 million more than for the March quarter.
In the June 2024 quarter, the 'primary income' deficit widened by $291 million to $3.8 billion. Stats NZ said within this, the overseas earnings of New Zealand investors increased by $36 million, while the earnings of overseas investors in New Zealand increased by $263 million.
"In the June 2024 quarter, New Zealand continued to issue bonds to overseas investors, which further added to the amount of interest paid on all issued bonds," Stats NZ senior manager Stuart Jones said.
The overseas earnings of New Zealand investors were largely profits from overseas-owned companies.
But in terms of goods, in the June 2024 quarter, the seasonally adjusted goods deficit widened by $110 million to $2.6 billion.
Goods imports increased by $183 million, led by transport equipment, including aircraft and aircraft parts.
Goods exports increased by $74 million, led by meat and a range of other commodities, including aluminium, wine, and fish. Exports of logs and wood products and dairy decreased.
In the June 2024 quarter, the seasonally adjusted services deficit narrowed by $28 million to $501 million.
Services exports increased $127 million, led by transportation services exports.
Services imports increased $99 million, led by travel imports – the spending of New Zealanders while travelling overseas.
In terms of our net international investment position - the difference between New Zealand’s financial assets and liabilities with the rest of the world - as at June 30, 2024, we had a net liability position of $205.3 billion (49.7% of GDP), $6.2 billion wider than $199.1 billion (48.6% of GDP) as at March 31, 2024.
Jones said the widening of the net international investment liability position reflected New Zealand’s international liabilities increasing more than its assets.
"In the June 2024 quarter, we borrowed more from overseas than we acquired in overseas financial assets," Jones said.
"This, together with weaker overseas market performance and the stronger New Zealand dollar, contributed to the widening of New Zealand’s net international investment liability position."
ANZ's Russell and Workman say they do expect the annual current account deficit will continue to narrow.
"The ongoing recovery in international tourism will support the narrowing in the services deficit, while a recovery in the goods terms of trade and weak domestic demand help to narrow the goods deficit. High global interest rates have been adding widening pressure to the income deficit, though as the global easing cycle continues, this pressure is likely to fade. But this adjustment is likely to be gradual with the deficit likely to settle above pre-Covid levels in the medium term," they said.
12 Comments
To reduce the current account deficit we need to import less stuff that is unrelated to investment. Much of the imported stuff has no return and is paid for by borrowing. How can we reduce the incentive to borrow against equity in houses that is applied to domestic consumption on things such as cars, utes, jet skis etc., without using interest rates as the lever to do so?
One way would be to lower the DTI limit on house lending. At the current DTI limit of 6.0, the implicit loan interest rate is about $4.8%, but a lower DTI limit of 5.0 would have a higher implicit loan interest rate of about 6.5%.
"Import less energy" This would be the Green's and to some extent Labour's delight. No Indonesian coal for Huntly = Rolling Blackouts aka load shedding. More electric bicycles and EVs would require some increase in generation. We have plenty of that don't we?
Need many more solar panels like oz and Spain. https://www.youtube.com/watch?v=o1Awo9GQrH4
ANZ's Russell and Workman say they do expect the annual current account deficit will continue to narrow.
Interesting prediction given that over the last couple of months we have had Tiwai Point significantly reduce production, and Methanex and two of the Winstone Pulp mills shutting down completely, all of whom are/were major sources of export revenue.
Government spending will likely increase imports because fiscal stimulus in this country is pumped to grow aggregate demand rather than unlocking greater economic capacity.
2/3rds of private debt in NZ is pumped into real estate and 90% is owed to foreign banks. Therefore, a larger chunk of the principal amount will once again push up the demand side of the economy (more imports) and the net interests will be wired off to Oz.
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