New Zealand’s current account deficit narrows in Q1 on lower income earned by foreign investors

New Zealand’s seasonally adjusted current account deficit contracted to three percent of GDP in the first quarter of 2016. According to Statistics New Zealand, the nation’s current account deficit fell $665 million in the March 2016 quarter to a deficit of $1,495 million. This is consistent with market expectations and had no effect on financial markets. 

The first quarter of 2016 current account deficit is the smallest since the first quarter of 2014. The reduced deficit can be attributed to a decline in income earned from foreign investment in New Zealand and a rise in the goods and services surplus, said Statistics New Zealand.

New Zealand’s seasonally adjusted goods trade deficit contracted in the first quarter. Overall, the exports value was weaker, with an increase in dairy prices but a decline in volumes for dairy and other items. However, this was prevailed over by a severe decline in oil prices, which is the nation’s one of the largest import items.

Exports were down $259 million, while imports were down $506 million. Goods imports dropped more than the exports leading to a narrowed goods deficit. However, the rebound in goods balance is expected to be reversed later due to lower dairy export prices in the second quarter and an increase in global oil prices.

Meanwhile, trade in services continued being robust. In the first quarter, trade in services recorded surplus more than $1 billion for the first time since June 2004 quarter. According to Statistics New Zealand, the services surplus increased $166 million, to $1,139 million, driven by a $91 million increase in travel service exports.

The number of tourists from abroad has continued to increase, along with a rise in average spend per person in the last year or so. In the first quarter, investment income deficit contracted due to a decline in earnings of overseas-owned companies in New Zealand. The country’s net international liabilities rose to 63.1 percent of GDP from 61.8 percent. This balance has been rebounding steadily since the end of financial crisis in 2009; however, it seems to be rising again.

This phase is likely to continue for a few more years, along with growing current account deficits, said Westpac in a research report.