Dairy exports drive surplus on goods and services to record, shrinking current account gap

Michael Gordon, senior economist at Westpac

Dairy exports drove New Zealand's surplus on goods and services to a record in the fourth quarter, helping offset an outflow of profits from foreign-owned companies and shrinking the nation's current account deficit.

The current account gap fell to $1.43 billion in the fourth quarter, from a revised deficit of $4.88 billion in the third quarter, according to Statistics New Zealand. The annual gap fell to $7.55 billion, or 3.4 percent of gross domestic product, from $8.87 billion, or 4.1 percent. Economists polled by Reuters had expected a quarterly deficit of $1.41 billion for an annual gap of $7.41 billion.

The kiwi dollar last traded at 86.21 US cents, little changed from immediately before the figures were released. The trade-weighted index was at 80.27 from 80.30.

The seasonally adjusted balance on goods and services turned to a surplus of $1.8 billion, the highest since the series began in 1987 and a $1.9 billion turnaround from the September quarter deficit. That was driven by a $1.4 billion increase in exports of goods, led by dairy products, the government statistician said.

"A sharp rebound in export volumes, after the severe drought in early 2013, led to the strongest seasonally-adjusted goods balance on record," said Michael Gordon, senior economist at Westpac Banking Corp.

The income deficit widened by $330 million to $2.6 billion compared to the third quarter, reflecting $259 million higher profits earned in New Zealand by overseas companies, while income earned on New Zealand's investments abroad fell by $35 million. The statistics agency said much of the profit earned in New Zealand was reinvested back into the local businesses rather than being paid in dividends.

New Zealand's net international liabilities fell to $147.6 billion, or 66.6 percent of GDP, at Dec. 31, from $149.5 billion, or 69.2 percent, three months earlier, the report showed.

Outstanding claims on overseas reinsurers for the Canterbury earthquakes were about $5.9 billion as at Dec. 31, down from $6.998 billion three months earlier.

(BusinessDesk)

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