Balance of Payments and International Investment Position: March 2010 quarter

Overview

Quarterly

The seasonally adjusted current account balance was a deficit of $1,291 million in the March 2010 quarter, a $1,628 million smaller deficit than in the December 2009 quarter. The lower current account deficit this quarter was due to:

• the investment income deficit falling $989 million (this series is not seasonally adjusted)
• the goods surplus rising $624 million, and
• the transfers surplus rising $137 million.

These changes were partly offset by the trade in services deficit increasing by $122 million. 

The fall in the investment income deficit was mainly due to lower profits earned by foreign direct investors from their subsidiaries in New Zealand. Additionally, profits earned abroad by New Zealand owned subsidiaries increased to their highest level since the December 2007 quarter.

The seasonally adjusted balance on goods was a surplus of $919 million in the March 2010 quarter, the sixth consecutive goods balance surplus. The increase in the surplus was due to a rise in exports of goods, mainly due to higher prices for dairy products. Increases in prices and volumes of imported goods partly offset the rise in exports this quarter.

The unadjusted current account balance was a surplus of $176 million. A surplus on the current account was last recorded in the June 2009 quarter, however this was affected by a large tax transaction, which if removed would have put the current account into deficit. Prior to this, the last time an unadjusted surplus was recorded was in the March 2003 quarter.

 

A current account which is near balance requires little financing. This is reflected in the March 2010 quarter net capital and financial account outflow of $1 million. In the quarter, a financial account net inflow of $87 million was offset by a capital account net outflow of $88 million.

Despite the small net capital outflow, there was significant activity within the financial account such as:

• the domestic banking sector repaid overseas liabilities and drew down overseas assets
• the Reserve Bank of New Zealand invested in overseas reserve assets, and
• foreign investors bought New Zealand government-issued debt securities.

The net international investment liability position was $166.7 billion (88.9 percent of GDP) at 31 March 2010. This is the second consecutive decrease in net international liabilities – the first time this has occurred since the December 2000 and March 2001 quarters. The decrease this quarter was due to changes in the valuation of foreign assets and liabilities.

Annual

For the year ended March 2010, the current account deficit was $4.5 billion (2.4 percent of GDP), the lowest since the year ended September 1989. This compares with deficits of $5.3 billion (2.9 percent of GDP) for the year ended December 2009, and $14.6 billion (7.9 percent of GDP) for the year ended March 2009.

Excluding unusually large tax transactions that were recorded during the year, the current account deficit would have been $6.1 billion (3.3 percent of GDP) for the year ended March 2010 and $7.0 billion (3.7 percent of GDP) for the year ended December 2009.

The fall in the year ended current account deficit between March 2010 and March 2009 was driven by:

• the investment income deficit falling $5.4 billion as foreign investors earned less income from their New Zealand investments, and
• the goods balance undergoing a $4.1 billion turnaround from a March 2009 year deficit to a March 2010 year surplus of $2.8 billion. The turnaround was due to an $8.3 billion fall in imports, which was partly offset by a $4.2 billion fall in exports.

The net international investment liability position at 31 March 2010 was $6.9 billion less than the position at 31 March 2009. This decrease was due to positive net changes in the valuation of overseas assets and liabilities, which were partly offset by a net inflow of foreign investment.

Trend

The current account balance trend series was a deficit of $2.0 billion in the March 2010 quarter. This is a similar size to the deficit recorded in the March 2004 quarter.

 

Further Detail

Goods

Quarterly

All references are to seasonally adjusted numbers unless otherwise stated.

The goods balance was a surplus of $919 million in the March 2010 quarter, $624 million higher than the December 2009 quarter surplus. This is the largest goods surplus since the June 2001 quarter. Exports of goods increased $1,218 million this quarter, but was partly offset by a $595 million increase in imports.

 

An increase in exports of dairy products was the main reason behind the increase in exports of goods this quarter. Dairy prices increased 32.1 percent during the quarter, driving exports of dairy products to their highest level since their peak in the December 2008 quarter. Higher prices for forestry products and non-food manufactures also contributed to the rise in goods exports.

The latest increase in goods exports is the first since the December 2008 quarter, when higher prices for exports of dairy and forestry products also led the rise.

Imports of intermediate goods were behind the increase in imports of goods this quarter. Higher volumes of crude oil contributed to the rise, although imports of other intermediate goods also increased. Consumption goods imports were also up in the latest quarter.

Annual

For the year ended March 2010, the goods balance was a surplus of $2.8 billion, a turnaround of $4.1 billion from the deficit for the year ended March 2009. Imports of goods fell $8.3 billion over this time, while exports of goods fell $4.2 billion.

The fall in the value of goods imports was mainly due to lower prices for petroleum and petroleum products (affected by an appreciating New Zealand dollar) and lower volumes of mechanical machinery imports. Exports of goods decreased due to lower prices for non-food manufactures, and food and beverages.

Services

Quarterly 

All references are to seasonally adjusted numbers unless otherwise stated.

The balance on services was a deficit of $146 million in the March 2010 quarter, $122 million larger than the December 2009 quarter deficit. This deficit was driven by a rise in imports of services combined with a fall in exports.  

 

Exports of services fell $28 million in the March 2010 quarter. Exports of travel services, which measure spending of foreign tourists while visiting New Zealand, fell $47 million (2.7 percent).

The number of overseas visitors to New Zealand was flat compared with the previous quarter but visitors spent less per person per day.

Imports of services increased $93 million in the March 2010 quarter. This increase follows four successive decreases from the peak in the December 2008 quarter. The reason for the increase was a rise in imports of transportation services, which includes international freight services. Imports of travel services remained flat this quarter. There were decreases in imports of royalties and license fees ($22 million) and computer and information services ($21 million). These categories are not seasonally adjusted.

Annual 

The year ended March 2010 balance on services was a deficit of $0.2 billion, down $0.9 billion from a $1.1 billion deficit in the year ended March 2009. This is the fourth consecutive quarter that the year-ended services deficit has narrowed since it peaked in the year ended March 2009.

The narrowing of the deficit was influenced by a fall in imports of transportation services. This fall was primarily driven by lower freight payments, as freight prices fell and volumes of imported goods, on which freight payments are made, fell 18.2 percent from the year ended March 2009.

Exports of travel services fell in the March 2010 year. Imports of travel services also fell, reflecting less spending by New Zealanders while travelling overseas.

Investment income

Quarterly

The investment income deficit for the March 2010 quarter was $2,265 million, a decrease of $989 million from the previous quarter. Income earned from foreign investment in New Zealand fell by $751 million, while income earned from New Zealand investment abroad was up $237 million. The quarterly income deficit is now at a level which was last seen in 2004–05.  

In the March 2010 quarter income from foreign investment in New Zealand was $2,949 million, a fall of $751 million from the previous quarter. The fall was driven by a $690 million decrease in profit earned by direct investors on their New Zealand subsidiaries. The fall in profits was exaggerated by a $379 million tax transaction in the December 2009 quarter, which increased profits of the banking sector. If these tax effects are removed, banking sector profit was flat between the December 2009 and March 2010 quarters. Dividends paid by New Zealand companies to overseas portfolio investors fell by $45 million while interest paid on foreign debt remained flat.

Income from New Zealand investment abroad increased by $237 million to $684 million in the March 2010 quarter. This was driven by a $218 million increase in profits earned by New Zealand direct investors from their subsidiaries operating abroad. Profits earned by New Zealand direct investors were $300 million, the most since the December 2007 quarter. Dividends received by New Zealand portfolio investors from their overseas share investments were up $19 million while interest received from foreign lending was flat.

Annual

The investment income deficit for the year ended March 2010 was $7.6 billion, a decrease of $5.4 billion from the year ended March 2009. During the March 2010 year, unusually large tax transactions totalled a net $1.6 billion and had the effect of decreasing income from foreign investment in New Zealand (see the December 2009 income commentary for details).

If these tax transactions are removed, the investment income deficit would have been $9.3 billion. As shown on the graph below, this is similar to the year ended March 2005 investment income deficit.

  

The year ended March 2005 investment income deficit was $9,383 million. The investment income deficit then peaked in the year ended June 2008 at $13,732 million. The increase between March 2005 and June 2008 was driven by a $5,287 million increase in income from foreign investment in New Zealand which was partly offset by an increase in income from New Zealand investment abroad.

Since peaking in June 2008, the year ended investment income deficit has fallen significantly. The tax adjusted deficit for the year ended March 2010 has fallen by $4,456 million when compared with the year ended June 2008. This was driven by a $5,758 million decrease in income earned from foreign investment in New Zealand and a $1,302 million decrease in income earned from New Zealand investment abroad. 

Current transfers

The balance on current transfers was a surplus of $170 million for the March 2010 quarter, an increase of $97 million from the December 2009 quarter.

Current transfers into New Zealand were $567 million in the March 2010 quarter, up $173 million from the previous quarter. An increase in non-resident withholding tax (NRWT) received by the New Zealand government from foreign investors was the major contributor to this increase.

In the March 2010 quarter, the higher NRWT received was due to the lagged effect of high dividend payments to foreign direct investors recorded in the December 2009 quarter, as well as dividend payments this quarter. There is often a lag in the relationship between dividends and NRWT, as the tax on dividends is not due until a month after a dividend is paid.

Current transfers out of New Zealand were $397 million this quarter, an increase of $77 million from the December 2009 quarter. The rise was mainly due to an increase in international aid payments.   

Capital account

The capital account mainly measures the value of assets transferred by migrants into, and out of, New Zealand. In the March 2010 quarter, the capital account balance was a deficit of $88 million, $43 million larger than the deficit recorded in the December 2009 quarter.

Inflows of capital transfers rose by $10 million from the December 2009 quarter to $300 million in the March 2010 quarter. There was an increase in migrant arrival numbers, the effect which was partly offset by a fall in the amount of investment funds transferred to New Zealand.

Outflows of capital transfers were $388 million in the March 2010 quarter, an increase of $52 million from the December 2009 quarter. As in previous quarters, more people immigrated to Australia from New Zealand during this quarter. 

Financial account and International Investment Position (IIP)

Financial account (flows)

Reflecting a current account in a near balance situation, the net financial account inflow in the March 2010 quarter was $87 million. This was the result of a $1,217 million withdrawal of New Zealand investment abroad (reducing assets) slightly exceeding a $1,130 million withdrawal of foreign investment in New Zealand (reducing liabilities).

The main contribution to the $1.2 billion withdrawal of New Zealand investment from abroad was:

• A $3.7 billion divestment of other investment assets which were mainly attributed to New Zealand banks reducing their overseas short-term lending and their deposits abroad.

Which was partly offset by:

• $1.8 billion of official sector investment in reserve assets abroad.
• $0.7 billion of portfolio investment abroad which featured investment in overseas issued debt securities by New Zealand fund managers, banks, and other sector enterprises; and divestment of overseas company shares, mainly by New Zealand fund managers.
• A small contribution of $0.1 billion from NZ direct investment abroad.

The main contributions to the $1.1 billion withdrawal of foreign investment from New Zealand were:

• A $1.7 billion divestment of other investment, primarily New Zealand banks reducing short-term loans and deposit liabilities to overseas.
• A divestment of a net $0.1 billion by foreign direct investors from their New Zealand subsidiaries.

Which was partly offset by:

• A net $0.6 billion of foreign portfolio investment in New Zealand. Foreign investors bought a net $2.3 billion of New Zealand Government issued debt securities, but reduced their holdings of short-term debt securities issued by New Zealand banks.

Reconciling the March 2010 quarter financial account and the International Investment Position (IIP)

The reconciliation table below shows both the transaction and non-transaction causes of the shift in the net IIP from the position at 31 December 2009 to the position at 31 March 2010 (table 2). The IIP is defined in the technical notes of this publication along with the associated term net debtor position.

 

At 31 March 2010, New Zealand's net international debtor position decreased by $1,627 million (1.0 percent) from the 31 December 2009 net debtor position. The net financial account transactions had minimal impact on the fall in the net international debtor position. The change in the net position was almost entirely driven by changes in the valuation of financial assets and liabilities which decreased the net international debtor position by $1,714 million.

• Changes in the value of financial derivative contracts. Asset positions increased by $676 million, and liability positions fell by $749 million from 31 December 2009 to 31 March 2010.
• Market price changes. Market values in the overseas sharemarkets in which New Zealand funds are principally invested were between 1 and 5 percent higher at 31 March 2010 compared with 31 December 2009.
• Exchange rate changes. The New Zealand dollar (NZD) appreciated against most of the European currencies, but depreciated against most of the other major currencies (particularly USD and AUD) in which New Zealand's foreign assets and liabilities are primarily held. An appreciation of the NZD reduces the NZD value of foreign currency assets and liabilities, while a depreciation of the NZD increases the NZD value of foreign currency assets and liabilities. 

Reconciliation for the years ended March 2009 and March 2010

The following reconciliation table shows both the transaction and non-transaction causes of the shift in the net IIP for the years ended 31 March 2009 and 31 March 2010.

 

In both the 2009 and 2010 March end years, changes in the value of New Zealand international assets and liabilities were the main cause of changes in the net IIP, with financial account transactions having a smaller impact.

At 31 March 2009, New Zealand's net IIP liability position was $21.8 billion larger than at 31 March 2008. Two thirds of this increase in the net liability position was due to changes in the value of New Zealand overseas assets and liabilities. In contrast, the March 2010 net IIP liability position was $6.9 billion less than the March 2009 position with valuation changes of New Zealand's overseas assets and liabilities reducing the net liability position.  

International Investment Position (stocks)

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

At 31 March 2010, New Zealand's net international debtor position was $166.7 billion (88.9 percent of GDP) and comprised of $141.9 billion of international assets and $308.5 billion of international liabilities. The 31 March 2010 net debtor position was $1.6 billion smaller than the 31 December 2009 position of 168.3 billion (90.6 percent of GDP).  

The fall in New Zealand's net IIP liability position from the December 2009 quarter to March 2010 quarter is the second consecutive decrease in the net IIP. The last time the net IIP decreased in consecutive quarters was in the December 2000 and March 2001 quarters. 

 

The fall in the net international debtor position between 31 December 2009 and 31 March 2010 was driven by a $1.3 billion decrease in net international equity liabilities, reinforced by a $0.4 billion decrease in the net international debt position.

The main impacts on the net equity position were from rising share markets abroad, and favourable exchange rate changes.

At 31 March 2010 compared with 31 December 2009, the fall in the net international debt position featured:

• The official sector's (Reserve Bank and General government) net lending (asset) position increase of $1.4 billion.
• The other sectors (mainly non–bank corporate sectors) net debt decrease of $1.1 billion.
• The banking sector's net overseas debt increase of $2.1 billion, driven by a $3.0 billion fall in lending partly offset by a $0.9 billion fall in borrowing.

 

Overseas debt with a time to maturity of one year or less was 40.4 percent of the total at 31 March 2010, a decrease compared with 44.3 percent at 31 December 2009, and 43.0 percent at 31 March 2009. This was the lowest level since the time series began at June 2000. In general, overseas debt with a time to maturity of one year or less as a proportion of total overseas debt has been trending down from 31 March 2008. This is consistent with the Reserve Bank of New Zealand's Prudential Liquidity Policy for banks which requires banks to hold longer-term foreign funding.

   

Next release ... 

Balance of Payments and International Investment Position: June 2010 quarter will be released on 22 September 2010.

Balance of Payments and International Investment Position: Year Ended 31 March 2010 will be released on 30 September 2010.

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 2009 quarter BoP and IIP major components, as a result of new or improved data.