Rise in imports sees current account deficit widen

New Zealand's seasonally adjusted current account deficit widened by $1.6 billion to $2.1 billion in the December 2020 quarter, Stats NZ said today.

"The widening of the quarterly deficit was driven by a rise in goods imports and a fall in services exports, which includes spending by overseas visitors in New Zealand," international statistics senior manager Darren Allan said.

"Imports of crude oil and motor cars fell sharply early in 2020, following COVID-19 travel restrictions, but those imports have since partially risen towards pre COVID-19 levels."

For the third quarter in a row, on a seasonally adjusted basis, New Zealand exported more goods than it imported. However, as imports recovered, the goods surplus narrowed to $215 million in the quarter.

Imports of goods were $14.5 billion, up by $1.0 billion from the September quarter, largely due to the recovery in imports of crude oil and motor cars.

"Goods imports have increased in the September and December 2020 quarters, from the low in the June 2020 quarter, after COVID-19 lockdown restrictions eased," Mr Allan said.

"However, goods imports continue to remain lower than they were in 2018 and 2019."

The rise in goods exports (up $233 million in the December quarter) was mainly driven by an increase in fish, crustaceans, and molluscs; and milk powder, butter, and, cheese.

"For the second time in 2020, New Zealand had a services balance deficit," Mr Allan said.

"Travel restrictions because of COVID-19 have seen a sharp drop in overseas visitors."

Over the past 20 years, New Zealand typically earned more from selling services overseas (for instance spending by international visitors on flights and hotels) than on buying services from overseas.

In the December 2020 quarter, New Zealand's seasonally adjusted services balance was a deficit of $677 million, compared with a $389 million surplus in the September 2020 quarter.

The services deficit was driven by a fall in services exports, down $733 million to $3.4 billion. Travel exports, including spending by international tourists in New Zealand, were down $504 million. Transport exports, spending on passenger flights and cargo, fell $25 million and remain at low levels.

"Services exports haven't been this low since the December 2001 quarter," Mr Allan said.

Services imports increased $333 million in the December quarter. Travel imports rose $80 million. Transport imports were up $78 million.

Smallest annual current account deficit since 2002

New Zealand's annual current account deficit for the year ended December 2020 was $2.5 billion, 0.8 percent of GDP, the smallest in almost 19 years. This compares with a deficit of $10.6 billion (3.3 percent of GDP) for the year ended December 2019.

"The last time the annual current account deficit was smaller was all the way back in June 2002," Mr Allan said.

"The small deficit reflects the impact of COVID-19, with a big drop in imports of crude oil and motor cars, lower spending by international visitors to New Zealand, and Kiwis spending far less on overseas travel."

International investment position remains steady

The net international investment position represents the difference between New Zealand's assets and liabilities with the rest of the world. New Zealand has a net liability position as we have more liabilities with the rest of the world than we do assets.

"A strengthening of the global financial markets and a stronger New Zealand dollar have both affected the value of our assets and liabilities," Mr Allan said.

The value of what New Zealand owns and owes overseas both rose by almost $19 billion in the December 2020 quarter. This left the country's balance sheet with the rest of the world, our net international liability position, almost unchanged at $177.1 billion.