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Current account deficit grows - earthquake will worsen it

The country's annual current account deficit rose from 2.4% of GDP to 3%, Statistics New Zealand announced this morning.The result is close to the consensus market forecast of 3% of GDP.The current account is also likely to see a substantial increase over

Rob Hosking
Wed, 22 Sep 2010

The country's annual current account deficit rose from 2.4% of GDP to 3%, Statistics New Zealand announced this morning.

The result is close to the consensus market forecast of 3% of GDP.

The current account is also likely to see a substantial increase over coming months after the Canterbury earthquake, Statistics New Zealand says, although it is not putting any numbers on the impact.

On the financial side, claims generated by insurance and reinsurance contracts will be reflected in financial transfers to New Zealand, Statistics New Zealand balance of payments manager John Morris said.

Insurers within New Zealand with investments abroad are likely to liquidate some of those assets to meet claims, he said. A third factor is the likelihood some of the reconstruction work will be financed by borrowing overseas, either directly or indirectly.

The goods balance is likely to be affected both by a drop in exports from the region and by imports of material to help reconstruction.

The makeup of today’s result, meanwhile, is the usual mix of good and bad news. Overseas-owned New Zealand firms earned higher profits in the June quarter, which pushed up the income deficit, Statistics New Zealand’s balance of payments manager John Morris said.

Other factors are a record high in the goods balance – a surplus of $2.9 billion this is partly driven by higher prices for New Zealand exports, especially the ones with a dairy component. The value of exports overall however fell $2.6 billion – the reason for the surplus is imports fell even further, by $5.5 billion.

That is not such good news, with the fall in non-food manufactured goods and capital goods, with some of these categories – especially the latter- crucial for any productivity increases as the economy slowing comes out of recession.

There has, however, been an increase in imports of intermediate goods, including raw materials and petroleum products.

The income deficit fell 1.9% as foreign investors earned less income from New Zealand investments and the services balance moving from a $698 million deficit to a $45 million surplus mostly due to a drop in imports of transportation services allied to the drop in the volume of imported goods.
 

Rob Hosking
Wed, 22 Sep 2010
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Current account deficit grows - earthquake will worsen it
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