Balance of payments in the black

IN THE BLACK: New Zealand has produced the first quarterly current account surplus for 21 years.
IN THE BLACK: New Zealand has produced the first quarterly current account surplus for 21 years.

New Zealand has produced the first quarterly current account surplus for 21 years, with the balance of payments in the black to the tune of $340 million for the three months to September.

A surplus in the current account means that New Zealand's earnings overseas are greater than its spending.

The quarterly surplus was the result of a fall in imports as people spent less in the recession and a smaller  investment income deficit reflecting a drop in profits by overseas owned companies, in part because of provisions after banks lost tax cases with Inland Revenue.

For the year to September, New Zealand's current account deficit was $5.7 billion (3.1 per cent of GDP).

That was the smallest as a percentage of GDP since March 2002, Statistics New Zealand said.

The deficit has fallen from 8.4 percent a year ago, when the current account deficit was $15.4 billion.

Contributing to the smaller deficit in the latest year was the first quarterly seasonally adjusted current account surplus since the December 1988 quarter.

The September 2009 quarter surplus was $340 million, compared with a deficit of $4.0 billion for the September 2008 quarter, driven by falls in the investment income deficit and imports of goods.

The same factors drove the $9.7 billion decrease in the deficit when comparing the year ended September 2008 with the year ended September 2009.

 "This is what we would expect given the economic climate over this time," Government and International Accounts manager John Morris said.

"Company profits are falling, and people are spending less on imports."
The investment income deficit fell $5.8 billion in the year to September 2009.

 Foreign-owned companies earned lower profits in New Zealand and interest paid on overseas debt also fell, the latter reflecting the fall in market interest rates over this time.

More than $2.0 billion in company tax transactions influenced the fall in income from foreign investment in New Zealand during the year ended September 2009.

However, the overall picture remains the same when these effects are removed - the investment income deficit would have fallen $3.7 billion between the years ended September 2008 and September 2009.

Additionally, the current account deficit for the September 2009 year would be $7.8 billion, or 4.2 percent of GDP, excluding the tax transactions.

Imports of goods fell $4.9 billion between the September 2008 and September 2009 years, driving the shift in the goods balance from a deficit to a surplus.

Import prices for oil products fell after peaking in the September 2008 quarter. The value of goods exports remained relatively stable over the same time.