Balance of Payments and International Investment Position: March 2009 quarter

Overview

The seasonally adjusted current account deficit was $2,682 million in the March 2009 quarter, $1,042 million smaller than the December 2008 quarter deficit of $3,724 million. The smaller deficit in the latest quarter was mainly due to a fall in imports of goods, which was partly offset by a decrease in exports of goods.

The seasonally adjusted balance on goods was a surplus of $863 million in the March 2009 quarter, a $967 million improvement from the December 2008 quarter deficit. This is the first quarterly goods balance surplus in six years. Imports of goods fell by $1,349 million in the March 2009 quarter mainly driven by a fall in volumes, although import prices also fell. Exports of goods fell $383 million due to a fall in prices, primarily driven by dairy products.

The seasonally adjusted balance on services also contributed to the smaller current account deficit in the latest quarter. Exports of travel services increased, while imports of transportation services fell, mainly due to lower expenditure on freight. This is linked to the drop in volumes of imported goods.

The investment income deficit, which is not seasonally adjusted, was $3,272 million for the March 2009 quarter, $35 million larger than in the December 2008 quarter. The increase in the deficit was driven by a $192 million fall in income from New Zealand investment abroad. This was partly offset by a fall in income from foreign investment in New Zealand.

In actual dollar terms, the current account deficit was $1,247 million in the March 2009 quarter. This is the smallest March quarter current account deficit since 2004. For the year ended March 2009, the current account deficit was $15,246 million (8.5 percent of GDP), compared with $16,108 million (9.0 percent of GDP) for the year ended December 2008, and $14,211 million (8.0 percent of GDP) for the year ended March 2008. 

 

The March 2009 quarter financial account recorded a net inflow of financial capital of $2,028 million, financing the current account deficit and increasing New Zealand's liabilities to overseas. A $2,115 million inflow of foreign investment in New Zealand was the predominant feature, with a small offset of $87 million from New Zealand investment abroad. The March 2009 quarter inflow of foreign investment contrasts with the $10,161 million foreign divestment from New Zealand in the December 2008 quarter. Also, in contrast with the March 2009 quarter, the June to December 2008 quarters recorded significant divestment of New Zealand investments from abroad.

New Zealand's net debtor position (that is, liabilities exceed assets) continues to grow. The 31 March 2009 position of $176.6 billion is 98.2 percent of GDP, and compares with positions of $167.4 billion (93.2 percent of GDP) at 31 December 2008, and $153.9 billion (86.4 percent of GDP) at 31 March 2008. From 31 December 2008 to 31 March 2009, changes in the valuation of New Zealand's international assets and liabilities contributed $7.2 billion to the larger net debtor position. The main valuation changes included a fall in the market value of New Zealand investments abroad (mainly shares in overseas companies) and a rise in the value of financial derivative liability positions.

The December 2008 quarter balance of payments still records a large net errors and omissions (residual) of $7.1 billion, and a net outflow of capital decreasing external liabilities. The net outflow of capital is inconsistent with the current account deficit in the quarter, which required financing with a net inflow of capital. This inconsistency in the accounts resulted in the very large residual. As discussed above, the March 2009 quarter does not exhibit these inconsistencies. The March 2009 quarter net inflow of capital is consistent with a current account deficit, and the residual of negative $619 million is within usual bounds.

The discussion in the Balance of Payments and International Investment Position: December 2008 quarter Hot Off The Press stated that the residual was a financial account and not a current account issue. The discussion also indicated that the residual arose from known areas of undercoverage in the measurement of financial account transactions (for example transactions in financial derivatives), and volatility in exchange rates and asset and liability values.

Trend

The current account balance trend series shows a significantly smaller deficit developing over the September 2008 and December 2008 quarters. The deficit is now under $3 billion for the first time since the March 2005 quarter, driven by a sharp rise in the goods and services balance, which is now showing a surplus for the first time since the December 2003 quarter. This surplus is mostly due to the imports of goods falling in the latest quarter, after growing at a faster rate than the exports of goods for the previous six years.

The income and current transfers deficit trend remains within the range of $3.0 billion to $3.4 billion that it has been in for the last two years. Income from New Zealand investment abroad and income from foreign investment in New Zealand have shown offsetting decreases in recent periods. 

 

Goods

All references are to seasonally adjusted figures unless otherwise stated.

The goods balance was a surplus of $863 million in the March 2009 quarter. This is a $967 million turnaround from the December 2008 quarter deficit of $104 million, and is the first surplus on goods since the March 2003 quarter. This surplus was the result of a $1,349 million fall in imports of goods this quarter, which was partly offset by a $383 million fall in exports.

The fall in the value of imports in the March 2009 quarter was mainly due to decreased values of imports of petroleum and petroleum products, and transport equipment. The fall in petroleum and petroleum products was driven by lower prices, while the drop in transport equipment was driven by a fall in volumes. There was also a fall in the volumes of passenger motor cars imported. All imports by broad economic category were down in volume compared with the December 2008 quarter (see Overseas Merchandise Trade Indexes (Volumes): March 2009 quarter).

Total import prices fell 5.4 percent this quarter, as lower world commodity prices more than offset the effect of the New Zealand dollar depreciating (which has the effect of making imports more expensive in New Zealand dollar terms). This is the first fall in import prices since the September 2007 quarter, driven by a 35.8 percent fall in the price of petroleum and petroleum products and a 39.1 percent fall in the price of non-fuel crude materials.

The fall in exports in the March 2009 quarter was driven by an 8.2 percent fall in export prices in the March 2009 quarter (the largest quarterly fall since the December 1957 quarter), more than offsetting an increase in the volumes of exported goods. The main driver behind the fall in export prices was dairy product prices, which fell 20.5 percent (this is the largest quarterly fall since 1950) but follows record-high prices for dairy products in the December 2008 quarter. Volumes of dairy products exported increased in the March 2009 quarter. The other main contributors to the fall in export values were non-food manufactures and forestry products, driven by drops in both prices and volumes.

Services

All references are to seasonally adjusted figures unless otherwise stated.

The services balance was a deficit of $299 million in the March 2009 quarter, compared with a deficit of $500 million in the December 2008 quarter. The smaller deficit in the latest quarter was due to a fall in imports of $121 million coupled with a rise in exports of $79 million.

The fall in imports of services was driven by transportation services, which fell $182 million in the March 2009 quarter. The fall in imports of transportation services was due to lower expenditure on sea freight, which is linked to the lower volumes of goods imported to New Zealand during the quarter. Imports of travel services fell $26 million in the latest quarter, caused by a 4.6 percent drop in the number of people travelling overseas from New Zealand. Imports have also fallen in most of the other services categories, particularly construction services (down by $24 million), personal, cultural and recreational services (down $20 million), and computer and information services (down by $18 million). These categories are not seasonally adjusted.

The $79 million rise in exports was mainly due to a $90 million increase in exports of travel services, which measures the spending of overseas visitors in New Zealand. There was a 1.5 percent fall in the number of overseas visitors in the March 2009 quarter. This fall was offset by an increase in the average expenditure per person, which may be linked to the depreciation of the New Zealand dollar, making New Zealand a relatively cheaper destination. The fall in the number of visitors was reflected in a decrease in transportation services, which includes revenue from international airfares sold by New Zealand-resident airlines. Revenue of other business services, which is not seasonally adjusted, fell by $36 million in the latest quarter, mainly due to lower revenue from management fees and advertising services

 

Investment income

The March 2009 quarter investment income deficit of $3,272 million was $35 million larger than the December 2008 quarter deficit. Income from New Zealand investment abroad was $192 million lower in the March 2009 quarter than in the December 2008 quarter. This was partly offset by a $158 million fall in income from foreign investment in New Zealand.

Of the $192 million fall in investment income from abroad, there were falls in income from direct investment (down by $80 million), portfolio investment (down by $69 million), and other investment (down by $44 million).

The fall in direct investment earnings was due to lower profits earned by the overseas subsidiaries of New Zealand investors. The fall in portfolio income was due to a fall in interest earned on New Zealand investors' holdings of foreign-issued debt securities. The $44 million fall in income from other investment abroad was driven by a fall in interest income on loans placed abroad by the banking sector.

Income from foreign investment in New Zealand fell $158 million to $3,743 million in the March 2009 quarter. This was driven by a $226 million fall in dividends paid by New Zealand companies to foreign portfolio shareholders, partly offset by a rise of $82 million in foreign direct investors’ earnings on their equity investments in New Zealand.

Interest paid to foreign lenders on New Zealand's overseas debt remained relatively unchanged in the latest quarter. Although there was a rise in income paid on portfolio debt securities, this was offset by a $214 million fall in other investment income.

For the year ended March 2009, the $13.4 billion income deficit was $210 million smaller than the deficit in the year ended December 2008. The year ended investment income deficit has decreased for a third consecutive quarter. However, the year ended March 2009 deficit remains relatively unchanged from the year ended March 2008 deficit.

From the year ended March 2008 to the year ended March 2009, income from New Zealand investment abroad fell $1,065 million. This fall was mainly due to reduced earnings from direct equity investment abroad and a fall in interest earned from lending abroad.

For the year ended March 2009, income from foreign investment in New Zealand was $1,043 million smaller than for the year ended March 2008. This decrease was mainly due to a fall in profits earned by foreign direct investors from their ownership of New Zealand companies. The proportion of profits distributed as dividends, rather than being reinvested in New Zealand, was 84.6 percent in the year ended March 2009, compared with 92.6 percent for the year ended March 2008. 

 

Current transfers

Current transfers are offsetting entries to transactions where goods and services are supplied or received without there being an exchange of equal value in return, such as taxes or donations. The balance on current transfers was a surplus of $15 million in the March 2009 quarter, a decrease of $108 million from the December 2008 quarter.

Current transfers into New Zealand were $455 million in the March 2009 quarter, down from $514 million in the December 2008 quarter. The decrease was mainly due to a drop in non-resident withholding tax (NRWT) received from foreign investors, which is payable on withholding income (such as dividends and interest) earned from their investments in New Zealand. Dividends paid to foreign investors was up in the March 2009 quarter (see table 6), but there is sometimes a lag between when a dividend is paid and the tax is recorded.

Current transfers out of New Zealand were $440 million in the March 2009 quarter, an increase of $49 million on the December 2008 quarter. This increase was due to increased expenditure on official international aid and subscriptions to international organisations.

Capital account

The capital account measures the value of assets transferred by migrants into, and out of, New Zealand, as well as the purchase and sale of intangible assets. The capital account balance was a deficit of $162 million in the March 2009 quarter, a $5 million narrowing from the December 2008 quarter deficit of $167 million.

Inflows of capital transfers fell $5 million in the March 2009 quarter compared with the December 2008 quarter. This was mainly due to a decrease in transfers from New Zealanders returning from countries other than Australia. Outflows of capital transfers fell $10 million this quarter, caused by a decrease in funds taken by migrants to countries other than Australia.

Financial account and International Investment Position (IIP)

Financial account (flows)

The March 2009 quarter current account deficit of $1.2 billion was principally financed by a $2.0 billion net inflow of capital. The net inflow of capital into New Zealand was the result of foreign investment in New Zealand of $2.1 billion and New Zealand investment abroad of $87 million.

New Zealand investment abroad of $87 million in the March 2009 quarter was composed of direct investment and investment in reserve assets, which was almost offset by divestment from abroad of portfolio and other investment assets.

Direct investment abroad in the March 2009 quarter was primarily due to New Zealand direct investors increasing net lending to their overseas subsidiaries. Investment in reserve assets in the March 2009 quarter was mostly in short-term instruments, and contrasted with the large divestments in each of the September and December 2008 quarters. The key features of the net $0.5 billion divestment of portfolio investment from abroad were banks reducing their holdings of foreign-issued debt securities, partly offset by fund managers investing in overseas company shares. The key features of the $1.2 billion divestment of other investment from abroad were New Zealand banks reducing their loans to overseas parties and reducing their deposits held abroad.

Of the $2.1 billion foreign investment in New Zealand in the March 2009 quarter, $0.9 billion was foreign direct investment and $1.7 billion was other investment, partly offset by a $0.4 billion withdrawal of foreign portfolio investment from New Zealand.

The main contributor to the foreign direct investment was equity capital injections into New Zealand subsidiaries by foreign direct investors. The foreign portfolio divestment was attributable to reduced foreign holdings of New Zealand-issued debt securities, partly offset by foreign portfolio investors buying shares in New Zealand companies. The two main drivers for the $0.7 billion net foreign divestment of New Zealand-issued debt securities were a reduction in foreign holdings of debt securities issued by New Zealand banks and a rise in foreign investor holdings of New Zealand government-issued securities. A key driver of the $1.7 billion other investment was a rise in banks' borrowing in the form of loans from abroad, partly offset by a fall in banks' deposit liabilities to abroad. Some of the increase in bank sector loan debt to abroad was offset by the fall in banks' debt security liabilities to abroad as noted above.

Reconciling the March 2009 quarter financial account and the International Investment Position (IIP)

 

At 31 March 2009, the net debtor position was $176,628 million, an increase of $9,203 million (5.5 percent) from 31 December 2008.

Net financial account transactions increased liabilities by $2,028 million and net valuation changes added a further $7,175 million to the net debtor position. Valuation changes arise from changes in exchange rates, market prices of assets and liabilities (eg shares), market values of financial derivative contracts, and other changes such as write-offs.

The main causes of the valuation effects in the March 2009 quarter were:

• Global share-price falls. The main overseas sharemarkets in which New Zealand funds are predominantly invested fell between 3 and 15 percent in the March 2009 quarter. The effect was to reduce the market value of New Zealand's investment in overseas company shares.
• Changes in financial derivative contract values. The net $3,697 million increase in financial derivative liability positions contributed 51.5 percent of the $7,175 million increase in the net debtor position contributed by valuation changes.
• Exchange rate changes. These added $0.3 billion to the net debtor increase in the March 2009 quarter, reflecting a smaller impact compared with the December 2008 quarter.

International Investment Position

This commentary discusses the presentation of New Zealand's international assets and liabilities as shown in tables 10 to 13 of this release.

At 31 March 2009, New Zealand's net debtor position was $176.6 billion (98.2 percent of GDP). This position was made up of $138.2 billion in international assets and $314.8 billion in international liabilities. The 31 March 2009 position was 5.5 percent larger than the 31 December 2008 position of $167.4 billion (93.2 percent of GDP), and 14.8 percent larger than the 31 March 2008 net debtor position of $153.9 billion (86.4 percent of GDP).

The March 2009 quarter rise in New Zealand's net international liabilities was due to a $5.9 billion rise in net international debt and a $3.3 billion rise in the net international equity debtor position.

Net international debt has increased $21.4 billion (15.2 percent) from 31 March 2008 to 31 March 2009. Compared with the 31 March 2008 level, overseas borrowing is up by $29.3 billion, partly offset by a rise in lending to abroad of $7.9 billion. The banking sector held 78.1 percent of the total net international debt at 31 March 2009, compared with 79.4 percent at 31 March 2008. Net international debt held by the corporate sector was 25.5 percent of the total at 31 March 2009 compared with 27.8 percent a year earlier. The official sector (general government and the Reserve Bank of New Zealand) continues to be in a net overseas lending (asset) position, but this asset position is now falling. At 31 March 2009, official sector net lending abroad was $5.9 billion compared with $10.1 billion at 31 March 2008.

Overseas debt with a time to maturity of one year or less was 42.5 percent of total debt at 31 March 2009. This compares with 47.3 percent at 31 December 2008, and 54.6 percent at March 2008. The December 2008 to March 2009 fall in debt due within one year is related to the increase in bank sector loans from abroad and the fall in the sector's debt security liabilities to abroad as discussed in the financial account commentary.

Next release ... 

Balance of Payments and International Investment Position: June 2009 quarter will be released on 22 September 2009.

For technical information contact:
Peter Roche
Wellington 04 931 4600
Email: info@stats.govt.nz

Revisions

The tables below present a summary of revisions to the December 2008 quarter BoP and IIP major components, as a result of new or improved data.