Overview
This release brings together previously released quarterly statistics into year ended March totals. Also included are some additional tables, which have not previously been published.
Included in this release:
- additional information on financial account flows and international investment position (IIP) stocks, disaggregated by country (tables 3 to 10)
- New Zealand’s total international assets and liabilities disaggregated by industry (table 11) – this year, these have been created under the Australian and New Zealand Standard Industrial Classification (ANZSIC) 2006 edition methodology (see technical notes for more details)
- New Zealand’s imports and exports of services by type (tables 12 and 13)
- hedging of New Zealand’s foreign currency denominated overseas debt (tables 14 to 16)
- the ratio of the current account deficit to Gross Domestic Product (GDP) (table 17).
Review: the year ended March 2008
The current account deficit for the year ended March 2008 was $14.2 billion (8.0 percent of GDP), compared with a year ended March 2007 deficit of $13.8 billion (8.3 percent of GDP). The $0.4 billion increase in the deficit was mainly due to an increase in the investment income deficit over the period, which was partly offset by an improvement in the balance on goods.
The investment income deficit rose from $12.0 billion in the March 2007 year to $13.4 billion in the March 2008 year. Income earned by foreign investors in New Zealand increased by $2.3 billion over this period. Foreign investors earned more profits and dividends from their investments in New Zealand companies, and more interest from New Zealand's overseas debt. This was partly offset by a $0.9 billion increase in New Zealand’s income from investment abroad.
The goods deficit fell from $2.8 billion in the March 2007 year to $1.7 billion in the March 2008 year. Exports of goods were up $3.1 billion in the March 2008 year, mainly due to increased prices and volumes of dairy products. The Tui oilfield also began full-time production during this period, increasing exported volumes of petroleum and petroleum products. Imports of goods increased $2.0 billion over the same period, with the largest contributor being petroleum and petroleum products.
The current account deficit was financed by a net capital inflow of $15.1 billion over the March 2008 year. This inflow was made up of $27.5 billion of foreign investment in New Zealand, partly offset by $12.4 billion of New Zealand investment abroad.
The $27.5 billion inflow of foreign investment in the year to March 2008 was $3.4 billion more than for the year to March 2007. This year, portfolio investment of $14.5 billion accounted for 52.9 percent of the total inflow of foreign investment into New Zealand, compared with the previous year when direct investment accounted for a similar percentage of the inflow of foreign investment. Portfolio investment inflows for the March 2008 year were mainly in short-term debt securities.
The $12.4 billion of New Zealand investment abroad in the March 2008 year was comprised mainly of investment in reserve assets by the official sector (Reserve Bank of New Zealand (RBNZ) and the New Zealand Treasury), and direct investment in overseas subsidiaries by the New Zealand corporate sector. In addition, New Zealand fund managers continued to invest in shares of overseas companies.
The net International Investment Position (IIP) showed a net debtor position (an excess of liabilities over assets) of $153.9 billion at 31 March 2008, a $10.7 billion (7.5 percent) increase from the net debtor position at 31 March 2007. The increase was driven by $15.1 billion of net financial account transactions, which was partly offset by a net $4.4 billion of changes in the valuation of New Zealand’s financial assets and liabilities. Valuation changes arise from changes in exchange rates, market prices of assets and liabilities, changes in the market value of financial derivative contracts and other changes such as write-offs.
At 31 March 2008, the level of New Zealand investment abroad increased by $10.8 billion compared with the March 2007 level. The value of reserve assets held abroad and the value of financial derivatives increased $4.2 billion and $3.8 billion, respectively.
Review: the years since March 2003
The current account deficit of $14.2 billion in the year ended March 2008 is a threefold increase on the $4.5 billion deficit for the March 2003 year. The investment income deficit has grown steadily over this time from $7.0 billion to $13.4 billion and the balance on goods has shifted from a surplus for the year ended March 2003 to a $1.7 billion deficit. The balance on services has also decreased, from a surplus of $1.8 billion to a surplus of $0.2 billion over this period.
The balance on goods was a deficit of $1.7 billion in the year ended March 2008, a $2.4 billion turnaround from the March 2003 surplus. However, the goods balance has improved $2.4 billion from its peak of a $4.1 billion deficit in the year ended March 2006. This contraction of the deficit was mainly due to rising dairy product exports from the March 2006 year onwards, and to increased exports of petroleum and petroleum products during the March 2008 year.
Imports of services have increased $2.4 billion between the March 2003 and March 2008 years, while exports increased $0.8 billion. This caused the balance on services to fall from a surplus of $1.8 billion to a surplus of $0.2 billion over this period. The main impact on the fall in the services surplus is growth in the expenditure of New Zealanders travelling abroad, while foreign tourists' expenditure in New Zealand has remained stable. The result has been a $1.2 billion fall in the surplus on travel services, from $4.2 billion in the March 2003 year to $3.0 billion in the March 2008 year.
The investment income deficit has widened each year since the year ended March 2003. The income deficit in the year ended March 2008 is 7.5 percent of GDP compared with 5.4 percent of GDP in the March 2003 year. The widening income deficit was due to earnings of foreign investors from their investments in New Zealand outstripping earnings from New Zealand investment abroad. Foreign investors' earnings rose from $9.3 billion in the March 2003 year to $17.1 billion in the March 2008 year. The strongest impact has been from increased interest paid on New Zealand's overseas debt. At 31 March 2008, overseas debt of $224.3 billion was $82.3 billion higher than the $142.0 billion level at 31 March 2003.
New Zealand's net overseas debt (lending to abroad less borrowing from abroad) was $140.6 billion at 31 March 2008, up $62.0 billion from March 2003. This rise in net overseas debt was partly offset by an $8.7 billion fall in the net equity liability position, resulting in a $53.3 billion (53.0 percent) rise in New Zealand's net IIP liability position at March 2008 compared with March 2003.
Trade in services
New Zealand’s trade in services with the rest of the world is a major component of the current account. Services are collected by type, with the main types being transportation services and travel services. Exports of services occur when a New Zealand resident provides a service to a non-resident. Imports of services occur when New Zealand residents purchase services from non-residents.
The balance on services was a surplus of $189 million for the year ended March 2008, down from a surplus of $377 million for the March 2007 year. This decrease in the surplus over this period was due to imports of services increasing by more than exports of services.
Exports of services increased $106 million between the March 2007 and March 2008 years. The largest contributor to this increase was transportation services, which includes New Zealand resident airline sales of international airfares to non-residents, and expenses incurred by non-resident carriers while in New Zealand. Personal, cultural and recreational services also contributed to the rise in services exports. Partly offsetting this was a fall in travel services, which measures spending by overseas visitors to New Zealand.
The value of imports of services increased $294 million from the March 2007 year to the March 2008 year. Imports of travel services (which measures New Zealand travellers’ expenditure overseas) were up $278 million over the period, due to greater numbers of New Zealanders travelling abroad. Operational leasing payments were up $92 million, mainly due to payments on ships and other large capital items.
Investment by country
When interpreting country statistics, please note that the country of investment is the country in which the immediate counterparty resides, rather than the ultimate source or destination of the investment. This is further discussed in the technical notes section of this release.
Australia remains New Zealand’s main investment partner, both as a destination for New Zealand investment abroad, and as a source of foreign investment into New Zealand. As a result, APEC and OECD (economic groupings of which Australia is a member) continue to be New Zealand’s principal investment partners.
At 31 March 2008, the stock of New Zealand’s investment abroad was $121.9 billion, and the stock of foreign investment in New Zealand was $275.7 billion. The three main sources of, and destinations for, New Zealand's international investment continue to be Australia, the United States of America (USA), and the United Kingdom (UK). Australia is our main investment partner for direct investment, while the USA and the UK are our main sources of portfolio investment.
At 31 March 2008, Australia accounted for $11.5 billion (55.3 percent) of New Zealand’s direct investment abroad and $50.8 billion (54.5 percent) of foreign direct investment into New Zealand. The level of Australian direct investment into New Zealand has increased $29.6 billion between 31 March 2003 and 31 March 2008 while the proportion of total direct investment that this represents has increased from 36.3 percent to 54.5 percent.
The USA and UK are New Zealand's most significant investment partners in respect of portfolio investment (mostly debt securities). As at 31 March 2008, these countries are the source of 46.0 percent of this form of investment in New Zealand. Australia and the UK are the most significant sources of foreign 'other' investment in New Zealand (mostly loans), together accounting for 55.7 percent of this form of investment. A feature of this portfolio and other investment is the New Zealand banking sector continuing to use the US and UK as funding sources.
New Zealand investment abroad occurs mainly in Australia, the USA and the UK, with $70.0 billion (57.5 percent) of total investment at 31 March 2008 attributed to these three countries, mainly in the form of portfolio investment. Australia, the USA and the UK are where the majority of equity investment by New Zealand fund managers is placed. Other countries featuring as destinations of New Zealand’s investment abroad at 31 March 2008 were Germany, the Netherlands, and Japan.
During the year ended March 2008 flows of investment into New Zealand were $27.5 billion. Of this, the largest contribution came from Australia ($7.8 billion). The UK ($6.6 billion) and the USA ($6.9 billion) were also significant contributors. The main form of the Australian investment into New Zealand was 'other' investment, reflecting an increase in borrowing by the New Zealand banking sector. Flows of New Zealand investment abroad were $12.4 billion over the same period, with $1.3 billion of investment flows to the USA, the main destination.
Investment by industry
Table 11 presents the stock of New Zealand’s total international assets and liabilities by industry, as at 31 March. The data is presented on a balance sheet basis, as opposed to an international investment position basis. The industry classification now used is the Australian and New Zealand Standard Industrial Classification (ANZSIC) 2006 edition. Surveyed enterprises are assigned to the industry that best represents the overall activity of their group. This activity can change from year to year. For more information about industrial classifications and the presentation of the data, please refer to the technical notes.
New Zealand's international assets and liabilities are predominantly held by the financial and insurance services industry. At 31 March 2008, the industry held $86.2 billion of New Zealand's international assets and $173.0 billion of New Zealand's international liabilities. This equated to 64.0 percent of New Zealand's international assets (64.8 percent at March 2007) and 59.9 percent of New Zealand's international liabilities (57.8 percent at March 2007).
At 31 March 2008, foreign investment of $26.0 billion in the New Zealand manufacturing industry made up 9.0 percent of New Zealand’s liabilities. The manufacturing industry's overseas assets decreased by $0.9 billion from year ended March 2007 to $17.0 billion at 31 March 2008. The manufacturing industry now holds 12.6 percent of New Zealand’s assets abroad at 31 March 2008, down from 14.9 percent at 31 March 2007.
The public administration industry’s overseas assets were valued at $10.7 billion at 31 March 2008, little changed from 31 March 2007. International liabilities rose by $2.4 billion to $17.5 billion at 31 March 2008 from the level at 31 March 2007. This is due to an increase in the levels of New Zealand government issued debt securities held by foreign investors. At 31 March 2008 the public administration industry held 7.9 percent of New Zealand’s international assets and 6.1 percent of New Zealand’s international liabilities.
Comparing 31 March 2003 and 31 March 2008, the financial and insurance services industry has accounted for most of the rise in New Zealand's international assets and liabilities. During the period the industry's international assets have increased by $33.8 billion (64.5 percent) and its liabilities have increased by $75.8 billion (78.1 percent). The growth in assets chiefly reflects investing abroad by the New Zealand Superannuation Fund, and the Reserve Bank of New Zealand increasing its holdings of reserve assets. Over the same period, the growth in liabilities largely reflects banks obtaining funding from abroad in their role as financial intermediaries.
Hedging
At 31 March 2008, 92.2 percent of New Zealand's total foreign currency denominated external debt was hedged compared with 92.8 percent at 31 March 2007.
New Zealand's total foreign currency denominated external debt rose to $109.9 billion at March 2008 from $88.0 billion at March 2007. Of this debt at March 2008, $101.4 billion (92.2 percent) was hedged, and $8.6 billion (7.8 percent) was not hedged.
Of the $101.4 billion hedged debt, 88.0 percent ($89.2 billion) was hedged by financial derivative contracts and 12.0 percent ($12.2 billion) was naturally hedged against foreign currency balance sheet assets and expected foreign currency receipts.
Of New Zealand's $109.9 billion foreign currency external debt at 31 March 2008, US dollar denominated external debt was $59.1 billion (53.7 percent) and Australian dollar denominated external debt was $16.3 billion (14.8 percent). At 31 March 2007, the US dollar denominated external debt was $48.8 billion and the Australian dollar denominated external debt was $14.3 billion.
For New Zealand's four major borrowing currencies (USD, AUD, JPY and EURO), hedging of the March 2008 debt levels ranged from 83.4 percent (AUD) to 98.3 percent (EURO).
Of the $59.1 billion in US dollar denominated external debt at March 2008, $54.9 billion (93.0 percent) was hedged. Of the hedged debt, 88.7 percent was hedged using financial derivatives and 11.3 percent was hedged by use of natural hedges against foreign currency balance sheet assets or expected foreign currency receipts.
Of the $16.3 billion Australian dollar denominated external debt, $13.6 billion (83.4 percent) was hedged. Of the hedged debt, 78.9 percent was hedged using financial derivatives and 21.1 percent was hedged by use of natural hedges against foreign currency balance sheet assets or expected foreign currency receipts.
Next release ...
Balance of Payments and International Investment Position: Year ended 31 March 2009 is expected to be released in September 2009.
For technical information contact:
Wido van Lijf
Wellington 04 931 4600
Email: info@stats.govt.nz