Balance of Payments and International Investment Position: June 2009 quarter

Overview

The seasonally adjusted current account deficit was $612 million in the June 2009 quarter, compared with a March 2009 quarter deficit of $2,120 million. The $1,508 million narrowing of the deficit in the June 2009 quarter was mainly due to a decrease in income from foreign investment in New Zealand. A fall in imports of goods was almost exactly offset by a similar fall in exports of goods, while imports of services also decreased.

The investment income deficit, which is not seasonally adjusted, was $1,600 million in the June 2009 quarter, $1,181 million smaller than in the March 2009 quarter. The decrease in the income deficit was driven by a fall in profits earned by foreign direct investors from their New Zealand subsidiaries, while interest paid on overseas borrowing also fell. The fall in profits was mostly in the banking sector and influenced by a large company tax transaction brought into account during the quarter.

The seasonally adjusted balance on goods was a surplus of $822 million in the June 2009 quarter, unchanged from the surplus in the March 2009 quarter. Imports of goods fell $772 million this quarter – the third consecutive quarterly fall – driven by lower prices as well as a fall in volumes. Exports of goods fell $771 million as falling prices more than offset an increase in export volumes. The fall in export prices (11.6 percent) was the largest since the March 1957 quarter, and was driven mainly by prices of dairy products.

In actual dollar terms, the current account balance was a surplus of $124 million in the June 2009 quarter. This is the first actual dollar surplus since the March 2003 quarter, although if the effect of the company tax transaction affecting investment income was removed, there would be a deficit of $537 million.

The year ended June 2009 current account deficit was $10,614 million (5.9 percent of GDP). This compares with a current account deficit of $14,569 million (8.1 percent of GDP) for the year ended March 2009, and $14,795 million (8.3 percent of GDP) for the year ended June 2008. 

 

The decrease in the current account deficit from the year ended March 2009 was due to a decrease in the investment income deficit, combined with a turnaround in the balance on goods from a deficit to a surplus over this time. The investment income deficit was $2,008 million smaller in the year ended June 2009 than in the year ended March 2009. The balance on goods changed from a deficit of $1,336 million for the year ended March 2009 to a surplus of $528 million for the year ended June 2009. This was driven by a large fall in volumes of imported goods. 

A current account which is near balance requires little financing. This is reflected in the June 2009 quarter net capital and financial account inflow of $436 million. While a net inflow of capital is inconsistent with a current account surplus (and is therefore reflected in a net errors and omissions (residual) of negative $560 million), the size of the June 2009 quarter net inflow is significantly less than the inflows measured in previous quarters.

The June 2009 quarter financial account recorded a net $0.6 billion inflow of financial capital into New Zealand. A $2.6 billion inflow of foreign investment into New Zealand was dominated by foreign investors purchasing debt securities issued by New Zealand banks and the government. The $2.0 billion outflow of New Zealand investment abroad featured investment by New Zealand fund managers and official sector investment in overseas reserves.

New Zealand's net international investment debtor position decreased by $1.9 billion (1.1 percent) at 30 June 2009 compared with 31 March 2009. The main factor was $2.5 billion of valuation changes decreasing net liabilities. The generally appreciating New Zealand dollar (NZD) and rising overseas share markets reduced New Zealand's net liabilities to abroad, but was partly offset by a rise in net financial derivative liabilities. This is in contrast to the increase in the net debtor position from 31 December 2008 to 31 March 2009. Over this period, net valuation changes increased the net debtor position by $8.5 billion, with falling world share markets and a rise in net financial derivative liabilities the main factors. 

Trend

The current account balance trend series deficit has decreased substantially for the third consecutive quarter, having fallen from a peak of over $4 billion in the September 2008 quarter to well under $1 billion in the June 2009 quarter. Both the goods and services, and income and transfers trend balances are adjusting sharply.

The goods and services balance is now showing a second consecutive surplus balance, while the income and transfers deficit balance is now less than half the level of a year ago. The main impacts are falls in the trend estimates of goods imports and investment income earned by foreign investors. 

 

Goods

All references to quarterly figures are seasonally adjusted unless otherwise stated.

The goods balance was a surplus of $822 million in the June 2009 quarter, unchanged from the March 2009 quarter surplus. This is the second consecutive surplus recorded and compares with a deficit of $1,118 million in June 2008 quarter. Exports of goods fell $771 million in the June 2009 quarter and imports of goods fell $772 million.

The fall in the value of exports in the June 2009 quarter was mainly due to an 11.6 percent fall in export prices, which more than offset an increase in export volumes. This drop in export prices was the largest since the March 1957 quarter. Dairy product prices, which fell 24.1 percent, were the major contributor to the decrease in export prices in the June 2009 quarter. Falls in the prices of non-food manufactured goods and forestry products also contributed to this decline (see Overseas Trade Indexes (Prices): June 2009 quarter (provisional).

The increase in export volumes during the June 2009 quarter was mainly driven by rises in export volumes of dairy products, petroleum and petroleum products, and forestry products.

The fall in value of imports in the June 2009 quarter was driven by falls both in import prices and import volumes. A 2.9 percent fall in import prices was due to falls in prices of chemical and related products, mechanical machinery products, and electrical machinery and apparatus. However, prices of non-crude materials increased during the June 2009 quarter.

The fall in import volumes was mainly driven by a drop in imported volumes of intermediate goods during the latest quarter. Balance of Payments (BoP) conceptual adjustments removed $889 million from the value of overseas trade imports in the June 2009 quarter, which included imports of aircraft valued at $571 million (see Overseas Merchandise Trade: June 2009 Hot Off the Press). Conceptual adjustments are made to exports and imports, and include goods that cross New Zealand's customs frontier without a change in ownership occurring. Refer to the technical notes of this release for further information.

The surplus recorded for the year ended June 2009 contrasts with a deficit for the year ended March 2009 and was mainly driven by falling imports. A large fall in import volumes was the main driver behind the drop of $2,260 million in imports between these two periods, with volume indexes for all the broad economic categories declining. This was partly offset by an increase of 4.3 percent in import prices.

The value of exports was $396 million lower in the year ended June 2009 than in the year ended March 2009. Export prices fell 9.4 percent, more than offsetting an increase in export volumes between these two periods. A drop of 31.1 percent in dairy prices was the major driver behind the fall in export prices, while volume of exports of dairy products increased 46.7 percent between these two periods.

  

Services

All references to quarterly figures are seasonally adjusted unless otherwise stated.

The services balance was a deficit of $78 million in the June 2009 quarter, compared with a deficit of $240 million in the March 2009 quarter. The smaller deficit this quarter was due to imports of services falling by more than exports of services.

Imports of services fell $305 million in the June 2009 quarter, mainly due to a fall in transportation services. This was driven by lower expenditure on sea freight, due to a combination of a fall in sea freight prices and lower volumes of goods imported to New Zealand this quarter. Imports of travel services fell $36 million, as the number of people travelling overseas from New Zealand fell 1.2 percent. The seasonally adjusted number of departing travellers was at the lowest level since the June 2005 quarter.

There were some offsetting movements in the other services categories, which are not separately seasonally adjusted. Expenditure on construction services increased $71 million, while there was a $67 million fall in other business services. This fall was mainly due to lower expenditure on services related to oil exploration and production. In the June 2008 quarter, services related to oil exploration and production drove imports of other business services to a peak of $725 million ($243 million higher than in the March 2008 quarter) but since then expenditure has been declining.

Exports of services fell $143 million this quarter, driven by a fall in transportation services. Exports of transportation services includes revenue from international airfares sold abroad by New Zealand-resident airlines, as well as the expenditure of foreign-owned vessels and aircraft while they are in New Zealand ports. Exports of travel services, which measures the spending of overseas visitors in New Zealand, fell $30 million. A 2.2 percent increase in the number of overseas visitors was offset by lower expenditure per person. This was due, in part, to a greater number of travellers visiting friends and relatives in New Zealand as opposed to travellers on holiday, who traditionally have higher expenditure. There was also a fall in international students' expenditure in New Zealand this quarter.

Of the other services categories, which are not seasonally adjusted, exports of communications services fell $16 million, while a number of other categories recorded smaller falls. These were partly offset by a $35 million rise in exports of personal, cultural, and recreational services, which increased due to higher revenues related to sports events and sales of films.

The year ended June 2009 balance on services was a deficit of $977 million, compared with a deficit of $118 million for the year ended June 2008. This increase in the deficit was due to falls in exports of travel and transportation services, combined with an increase in imports of other business services over this period. International visitors to New Zealand fell 2.9 percent, while greater expenditure on management fees and legal, accounting, and management consulting services drove the increase in imports of other business services.

 

Investment income

The investment income deficit was $1,600 million in the June 2009 quarter, $1,181 million smaller than the March 2009 deficit of $2,781 million. The decrease in the deficit was caused by a $1,186 million fall in foreign investors' earnings on their investments in New Zealand, while income on New Zealand's investments abroad remained stable. The June 2009 investment income deficit was at its lowest level since the March 2002 quarter.

Income on New Zealand's investment abroad was $469 million this quarter, little changed from that earned in the March 2009 quarter. The profitability of New Zealand-owned subsidiaries operating overseas fell by $64 million this quarter as New Zealand direct investors lost a net $29 million on their overseas equity investments. This fall in income was nearly offset by an increase in dividends received by New Zealand investors on their overseas portfolios. Typically, there is an increase in dividends received when comparing June and March quarters.

Foreign investors earned $2,068 million on their New Zealand investments in the June 2009 quarter. This is the lowest level since the March 2001 quarter. The fall in income earned by foreign investors was driven by a $1,094 million decrease in income earned by non-resident direct investors on their New Zealand subsidiaries. The fall in direct investment income was driven by a decrease in the profitability of the domestic banking sector. Interest paid to foreign investors on debt also fell by a combined $214 million. The fall in direct investment and interest income was slightly offset by an increase in dividends distributed to non-resident portfolio investors.

Income earned by non-resident direct investors on their New Zealand subsidiaries was $553 million in the June 2009 quarter, the lowest level since this time series began in the June 2000 quarter. This result has been affected by unusually large company tax charges of $661 million brought into account by the Bank of New Zealand in the June 2009 quarter. Company tax is a transaction between the resident entity and the resident tax authority. The income attributable to foreign investors measured by the balance of payments is the net profit after tax.

The year ended June 2009 investment income deficit was $11,027 million, a decrease of $2,008 million from the year ended March 2009. The year ended income deficit has decreased for the fourth consecutive quarter. Income from New Zealand investment abroad decreased by $270 million, while income from foreign investment in New Zealand fell by $2,278 million. The year ended June 2009 income deficit also fell when compared with the year ended June 2008 deficit. The year ended June 2009 deficit was $2,705 million smaller than the June 2008 deficit of $13,732 million. This fall was driven by a decrease in income earned by non-resident direct investors on their New Zealand subsidiaries and a decrease in interest paid on foreign borrowing. 

Significant revisions were made to the March 2009 quarter investment income balance. The magnitude of these revisions are provided in the revisions table which can be found at the end of this commentary. Income from foreign investment in New Zealand was revised down by $489 million from that which was previously published. These revisions also decreased the income deficit for the year ended March 2009. The revisions were made in response to more accurate information provided by survey respondents. 

 

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 $287 million for the June 2009 quarter, an increase of $233 million from the March 2009 quarter surplus.

Current transfers into New Zealand were $581 million in the June 2009 quarter, $126 million higher than in the March 2009 quarter. This increase was mainly due to an increase in non-resident withholding tax (NRWT) received. NRWT is payable by foreign investors on their withholding income, such as interest and dividends received from their investments in New Zealand.

Current transfers out of New Zealand were $294 million this quarter, $107 million less than in the March 2009 quarter. This fall was mainly due to decreases in international aid spending by the New Zealand government. 

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. In the June 2009 quarter, the capital account balance was a deficit of $141 million, a similar deficit to the March 2009 quarter.

Inflows of capital transfers fell $60 million in the June 2009 quarter compared with the March 2009 quarter. This was due to decreases in transfers by migrants from countries other than Australia and by New Zealand families returning from overseas. Partly offsetting these falls was a $21 million increase in investment transfers in the quarter.

Capital transfers out of New Zealand were down by $61 million this quarter. This was due to lower transfers by migrants departing for Australia.

Financial account and International Investment Position (IIP)

Financial account (flows)

The June 2009 quarter financial account recorded a net capital inflow to New Zealand of $0.6 billion. The net inflow was the result of a $2.6 billion inflow of foreign investment into New Zealand partly offset by a $2.0 billion outflow of New Zealand investment overseas. The June 2009 quarter outflow of New Zealand investment overseas was in contrast to the previous four quarters, in which there was divestment of assets from abroad.

The June 2009 quarter $2.0 billion outflow of New Zealand investment abroad featured investment in portfolio investments, reserve assets, and direct investment. These flows of investment abroad, totalling $4.5 billion, were partly offset by a $2.3 billion withdrawal of loan assets from abroad mainly by the banking sector. Portfolio investment abroad of $2.3 billion was primarily the result of New Zealand fund managers investing in overseas company shares and debt securities issued abroad. The June 2009 quarter $1.3 billion investment by the official sector in overseas reserves was significantly higher than in the previous quarter.

The $2.6 billion June 2009 quarter inflow of foreign investment into New Zealand was a result of a $3.2 billion inflow of foreign portfolio investment, partly offset by a $0.6 billion divestment from New Zealand by foreign direct investors. The main feature of the inflow of foreign portfolio investment was foreign investors buying debt securities issued by New Zealand banks and by the New Zealand government. The $0.6 billion divestment by foreign direct investors from their New Zealand subsidiaries arose primarily from a rundown of retained earnings. A feature of this was an unusually large company tax charge brought into account this quarter (as discussed in the income commentary). Foreign other investment in New Zealand (mainly loans and deposits) in the June 2009 quarter featured nearly offsetting inflows of foreign deposits into New Zealand banks and repayments of loans from abroad, mostly by the banking sector. 

Reconciling the June 2009 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 March 2009 to the position at 30 June 2009. The term IIP is defined in the technical notes of this publication along with the associated term net debtor position. 

Net changes in the valuation of New Zealand's assets and liabilities reduced the net debtor position by $2,475 million, but were partly offset by the $577 million net inflow of capital measured in the financial account, which increased liabilities.

Changes in the value of assets and liabilities 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 largest impact in the June 2009 quarter was from the generally appreciating NZD, with significant contributions from changes in financial derivative contract values and rising sharemarkets overseas.

• Exchange rate changes. The overall effect was to reduce New Zealand's net debtor position by $4,098 million. An appreciation of the NZD decreases the NZD value of foreign currency assets and liabilities. Comparing exchange rates at 31 March 2009 and 30 June 2009, the NZD appreciated against most of the foreign currencies in which New Zealand's foreign assets and liabilities are primarily held. The most significant appreciations were against the United States dollar, Japanese yen, and the euro.
• Market price and other valuation effects.The overall effect was to reduce the net debtor position by $1,317 million. The key impact was that market values in the overseas share markets in which New Zealand funds are invested were between 10 and 39 percent higher at 30 June 2009 compared with 31 March 2009.
• Changes in the value of financial derivative contracts. The net effect was to increase the net debtor position by $2,940 million. Financial derivative contracts in asset positions at 30 June 2009 were $6,810 million lower than at 31 March 2009, while contracts in a liability position were $3,870 million lower at 30 June 2009 compared with 31 March 2009.

International Investment Position

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

At 30 June 2009, New Zealand's net international debtor position was $171.6 billion (95.2 percent of GDP). The net debtor position arose from $134.5 billion in international assets and $306.2 billion in international liabilities. The 30 June 2009 net debtor position was 1.1 percent smaller than the 31 March 2009 net debtor position of $173.5 billion (96.4 percent of GDP), and was 11.3 percent larger than the 30 June 2008 net debtor position of $154.1 billion (86.1 percent of GDP).

 

The fall in New Zealand's net debtor position from 31 March 2009 to 30 June 2009 was the first decrease since the $1.4 billion (1.0 percent) fall from 31 December 2005 ($129.6 billion) to 31 March 2006 ($128.2 billion).

The 31 March 2009 to 30 June 2009 fall in the net debtor position was primarily driven by a $1.4 billion fall in net international debt, complemented by a $0.5 billion fall in the net international equity debtor position. The main driver of the fall in net debt was a $2.3 billion fall in the net debt of the ‘other’ sector (mainly private sector corporations). This fall in net debt was partly offset by a $0.5 billion rise in the net debt of the banking sector, and a $0.4 billion fall in the official sector's net lending abroad.

Overseas debt with a time to maturity of one year or less was 44.2 percent at 30 June 2009, compared with 51.4 percent at 30 June 2008. From 31 March 2009 to 30 June 2009, overseas debt with a time to maturity of one year or less was relatively unchanged.

At 30 June 2009, the official sector (general government and Reserve Bank of New Zealand) continues to be in a net overseas lending (asset) position, but this asset position continues to fall. At 30 June 2009, official sector net lending abroad was $5.3 billion compared with $11.3 billion at 30 June 2008.

The $17.5 billion rise in the net debtor position at 30 June 2009 compared with 30 June 2008 arose mainly from a $12.7 billion rise in net international debt. The rise in net debt was primarily driven by banking sector net debt increasing by $8.2 billion. The net debt of the 'other’ sector fell by $1.5 billion and the official sector's net lending to abroad fell by $6.0 billion. Also at 30 June 2009, the banking sector held 77.0 percent of the total net international debt, compared with 78.1 percent at June 2008. Net international debt held by the other sector was 26.3 percent of the total at June 2009 compared with 29.6 percent a year earlier.

Next release ... 

Balance of Payments and International Investment Position: September 2009 quarter will be released on 22 December 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 March 2009 quarter BoP and IIP major components, as a result of new or improved data.

Revisions have been made as far back as the June 2003 quarter for current account data and as far back as the June 2000 quarter for financial account and IIP data. For further details see the supplementary revisions tables and the technical notes to this release.

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