Deficit widens as dairy prices drop

New Zealand's current account deficit was $2.8 billion in the March quarter which is $0.6 billion larger than the December 2011 quarter deficit.

For the March 2012 year, New Zealand's current account deficit was $9.7 billion (4.8% of GDP). This compares with a deficit of $7.2 billion (3.7% of GDP) for the March 2011 year.

The quarterly deficit increase to $2.8 billion was mainly caused by a turnaround in New Zealand's international trade in goods and services, which was a deficit for the first time since the December 2008 quarter.

Dairy products, crude oil, and fruit drove goods exports down, while imports of crude oil increased.

"The value of dairy exports fell despite an increase in volumes, as dairy prices fell for the third quarter in a row," balance of payments manager John Morris says.

Spending by visitors to New Zealand also fell as visitor numbers dropped following the Rugby World Cup.

Profits earned by foreign-owned companies in New Zealand fell in the March quarter, partly offsetting the falls in exports of goods and services.

Despite the fall in profits, earnings reinvested in New Zealand by these companies increased $0.4 billion this quarter. I

In contrast, dividends paid to overseas investors by these companies fell $0.8 billion, to their lowest level in over seven years.

The year-end deficit increase to $9.7 billion was mainly due to higher profits earned by foreign-owned banks and increased imports of petroleum and petroleum products. Services imports and transfer payments to overseas also increased over this time, due to the rising costs of reinsurance in the latest

year.

Despite the current account deficit in the March 2012 quarter, New Zealand's net international liability position decreased to $143.2 billion (70.9% of GDP) at 31 March 2012, from $146.3 billion (72.9% of GDP) at December 31, 2011.