NZ current account deficit improves

JAMES WEIR
Last updated 11:23 19/12/2012

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The current account deficit narrowed to $2.5 billion for the September quarter, but the annual deficit remains near levels that would cause concern for international investors.

The September quarter deficit was better than the shortfall of $2.8b in the June quarter.

The fall in profits earned by foreign companies was partly offset by a rise in insurance premiums paid overseas, with international insurance payments up $84 million in the latest three month period.

The annual current account balance was a deficit of $9.9b (4.7 per cent of GDP) for the September 2012 year. This compares with a deficit of $8.8b (4.3 per cent of GDP) for the September 2011 year.

The annual deficit was 4.8 per cent for the year ended June.

A deficit above 5 per cent of GDP is typically seen as reaching worrying levels for international investors.

The New Zealand dollar was unmoved by the deficit figures, trading about US84.1c. The currency was down from US84.5c a day ago.

The current account measures New Zealand's transactions with the rest of the world. A current account deficit means that the rest of the world earned more from New Zealand than New Zealand earned from overseas. 

The smaller deficit this quarter was mainly due to a fall in profits earned by foreign-owned companies in New Zealand. These profits can be reinvested in New Zealand, or returned overseas as dividends. 

"Although foreign-owned companies earned less in New Zealand this quarter, over $1b was still reinvested in New Zealand, the third quarter in a row that reinvested earnings have been at this level," balance of payments manager John Morris said. 

A rise in insurance premiums partly offset the fall in profits earned by overseas-owned companies in the September 2012 quarter. Some insurance policies were renewed at higher premiums, which caused international insurance payments to increase by $84m this quarter.

New Zealand's net international liability position was $148.4b, equal to 71.2 per cent of GDP, almost unchanged from the June quarter.

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- BusinessDay.co.nz

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