Imports continue to widen current account deficit

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The seasonally adjusted current account deficit widened to $6.5 billion in the December 2021 quarter, from $4.7 billion in the September 2021 quarter, Stats NZ says.

The current account deficit was wider than the previous quarter mainly due to an increase in the value of goods and services imports, up $1.5 billion (6.7 percent) to $24.5 billion.

Goods and services exports increased at a slower rate, up $20 million to $20.3 billion.

Goods imports continue to climb

In the December 2021 quarter, compared with the September 2021 quarter, the seasonally adjusted goods deficit widened by $417 million to $2.3 billion.

Goods imports rose by $926 million (up 5.1 percent) to $19.0 billion.

"The value of imports has continued to grow in recent quarters due to strong ongoing domestic demand for imported goods, and rising prices and transport costs internationally," says institutional sectors senior manager Paul Pascoe.

In the December 2021 quarter, the value of New Zealand’s goods imports was $19.0 billion, compared with $12.5 billion in the June 2020 quarter.

While the demand for goods has been strong during the Covid-19 pandemic, production in some industries slowed globally, resulting in supply shortages and price increases for many goods. In the December 2021 quarter, the price of goods imports rose 3.8 per cent, while the volume of goods imported fell 0.9 per cent.

The rise in the value of goods imports was widespread across many items, including transport equipment, crude oil, and fertiliser.

In the December 2021 quarter, the value of seasonally adjusted goods exports rose by $509 million to $16.7 billion.

The rise was driven by an increase for milk powder, butter and cheese, mechanical machinery and equipment, and aluminium.

The rise in exports was partially offset by a fall in the export of logs.

Freight pushes up services imports

In the December 2021 quarter, New Zealand’s seasonally adjusted services deficit widened by $1.1 billion to $1.9 billion.

Services imports rose by $616 million to $5.4 billion, and services exports fell by $489 million to $3.6 billion.

In the December 2021 quarter, seasonally adjusted transport services imports rose by $196 million to $1.5 billion.

"The value of freight services has increased in part because higher demand for imported goods means more is coming into New Zealand, but also because freight costs have risen in recent quarters,” says Pascoe.

Since the June 2020 quarter, transport services imports have risen by $819 million to $1.5 billion. During this period, both sea and air transport services imports were mostly from the movement of freight rather than passengers.

In the December 2021 quarter, seasonally adjusted travel services exports fell by $319 million to $1.0 billion.

The value of travel services exports has remained at much lower levels since the March 2020 quarter, when border restrictions were introduced in response to Covid-19.

In the year ended December 2021, the annual current account deficit was $20.2 billion, 5.8 per cent of gross domestic product (GDP).

This compares with $15.8 billion for the year ended 30 September 2021 (4.6 percent of GDP).

The largest annual current account deficit prior to this was $14.7 billion in the December 2008 year during the 2007–2009 global financial crisis. The deficit at that time was equivalent to 7.8 per cent of GDP.

Financial account

The financial account shows the flows of investment into, and out of, New Zealand. In the December 2021 quarter, the financial account recorded a net inflow of $6.4 billion from overseas investors. This inflow helped to finance the current account deficit.

Overseas investors injected $10.6 billion into the New Zealand economy during the December 2021 quarter. This included the inflow of $6.3 billion to purchase New Zealand government-issued debt securities.

By comparison, New Zealand residents invested $4.1 billion in overseas financial assets. These investments included the outflow of $ 3.2 billion to purchase portfolio shareholdings in overseas businesses.

Net international liability position narrows

New Zealand’s net international liability position was $161.3 billion (46.1 percent of GDP) at 31 December 2021, $2.9 billion narrower than at 30 September 2021.

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.

Overseas investors hold more assets in New Zealand than we hold overseas but the gap between our external assets and liabilities became smaller in the December 2021 quarter.

The narrowing of the liability position was due to rising offshore financial asset values outpacing the rise in the value of financial liabilities. 

Offshore financial assets increased by $15.1 billion. Asset purchases accounted for about a quarter of this change, driven mostly by New Zealand-based fund managers investing in offshore share markets. While the rest was due to market prices and other valuation changes.

New Zealand financial liabilities to overseas investors increased by $12.2 billion. Financial account transactions of $10.6 billion accounted for most of the change in the level of liabilities.

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