November 5th, 2024
New Zealand has witnessed a narrowing of its annual current account deficit, reaching $27.8 billion, or 6.9% of its gross domestic product (GDP) for the year ending December 31, 2023, Stats NZ said in a media release on Wednesday. This figure represents a significant improvement from the $33.4 billion deficit, or 8.8% of GDP, recorded at the end of 2022.
The big picture: This reduction in the current account deficit indicates a positive shift in New Zealand's economic landscape, underscoring the nation's increased earnings overseas relative to its spending.
Stats NZ's release highlighted that the deficit's decrease was primarily fuelled by a $6.1 billion reduction in the services deficit and a $0.3 billion narrowing of the goods deficit. However, these gains were somewhat offset by an $0.8 billion increase in the primary income deficit.
Zoom in: Services and goods deficits
A significant portion of the improvement in the services deficit can be attributed to a $6.8 billion increase in travel exports, which totalled $12.9 billion. This rise was largely driven by holiday spending from overseas visitors, particularly from Australia, the USA, and the UK. The uptick in travel exports was complemented by a $1.3 billion increase in air transportation exports, contributing to an overall $9.0 billion rise in services exports.
Conversely, services imports saw a $2.9 billion increase, partly due to a $0.7 billion rise in insurance services imports, linked to higher reinsurance costs following extreme weather events in 2023.
Goods deficit sees marginal improvement
The goods deficit also experienced a slight reduction, closing the year with a $12.2 billion deficit, a $0.3 billion improvement from the previous period. This was a result of a $3.9 billion decrease in goods imports, offsetting a $3.5 billion fall in goods exports, with notable declines in meats, dairy, and logs and woods products.
The primary income deficit widened by $0.8 billion to $12.5 billion, indicating that overseas investors earned more from their investments in New Zealand than what New Zealand investors earned from abroad. This disparity was further exacerbated by interest payments to overseas portfolio investors being approximately three times the interest received from overseas.
International investment position
As of December 31, 2023, New Zealand's net international investment liability position worsened, expanding to $209.6 billion, or 51.7% of GDP. This marks an $11.8 billion increase from the $197.9 billion, or 49.3% of GDP, recorded as of September 30, 2023, highlighting the country's growing financial liabilities compared to its assets globally.
As New Zealand continues to manage its current account and international investment positions, the focus remains on balancing overseas earnings with expenditures, and on addressing the challenges posed by external investment dynamics.