Current account surplus in first quarter, on exports, visitors

Michael Gordon, senior economist at Westpac

New Zealand recorded a record current account surplus in the first quarter, as exports such as meat and dairy drove the goods balance to an all-time high and the country enjoyed spending by an inflow of overseas visitors.

The current account surplus was $1.41 billion in the three months ended March 31, from a revised deficit of $1.5 billion in the fourth quarter of 2013. The annual deficit was $6.3 billion, or 2.8 percent of gross domestic product, matching the level of March 2011, from a revised annual gap of $7.6 billion, or 3.4 percent of GDP, three months earlier. (See graph below)

The figures about matched economists' expectations in a Reuters survey of a quarterly surplus of $1.3 billion and annual deficit of $6.4 billion. The surplus in the latest quarter compares to a surplus of just $107 million in the same period last year, when drought disrupted farm output. Global supplies of dairy products have come more into balance this year, and prices have retreated from their highs in recent months. The New Zealand dollar recently traded at 86.53 US from 86.52 cents immediately before the release.

"By the March quarter of this year, export volumes had fully recovered from last year's drought, while commodity prices were at or near record highs," Michael Gordon, senior economist at Westpac Banking Corp, said in a note before the figures were released. He expects the annual deficit to narrow to 2.3 percent of GDP in the June quarter.

The balance on goods widened to a record $2.5 billion in the first quarter, as exports climbed to $13.9 billion while imports retreated to $11.4 billion. The balance on services jumped to $1.69 billion, from $124 million three months earlier, reflecting spending by overseas visitors in what is the busiest quarter for tourists.

The balance on income was a deficit of $2.68 billion, just narrower than the December quarter's $2.7 billion gap, as the income outflow fell to $4.2 billion from $4.36 billion, while the inflow fell to $1.5 billion from $1.64 billion.

Statistics New Zealand said this reflected lower profits overseas for New Zealand-owned firms, and a drop in income for foreign investors here, as a result of lower dividend payments. While the banking sector increased profits in New Zealand it was offset by lower earnings for other corporates.

The nation's net liability position at March 31 was $148 billion, or 65.3 percent of GDP, up from $146.9 billion, or 66.4 percent of GDP at Dec. 31.

New Zealand's net external debt position, which excludes the value of financial derivatives, was $139 billion, or 61.4 percent of GDP, the lowest since December 2007, reflecting reduced borrowing overseas by both the government and the banking sector.

(Click to zoom)

(BusinessDesk)

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