Dairy demand drives deficit down

Christina Leung.
Christina Leung.
Record dairy product export levels have driven New Zealand's current account deficit to its lowest quarterly result since March 2010, underpinning expectations of a strong flourish to gross domestic product data out today. The current account measures New Zealand trade flows and investment returns.

New Zealand exported record amounts of dairy produce in the quarter to December, which drove the balance on goods and services to its highest surplus, Statistics New Zealand (SNZ) balance of payments manager Jason Attewell said.

The deficit for the quarter to December stood at $800 million, having dropped by $1.7 billion from the previous quarter to September, while the annual current account deficit also fell.

For the year to December, the deficit was $7.5 billion, or 3.4% of gross domestic product (GDP), while for the year to September it stood at $8.9 billion, or 4.1% of GDP.

SNZ said the seasonally adjusted balance on goods and services turned to a $1.8 billion surplus, the highest since the series began in 1987 and a $1.9 billion turnaround from the September quarter deficit, which was driven by the $1.4 billion increase in exports of goods, led by dairy.

ASB economist Christina Leung said the surge in dairy exports reflected the strong rebound in milk production in the previous quarter.

''While there has been some easing in global dairy prices in recent auctions, overall global demand remains strong. We expect the continued high level of dairy exports, reflecting both strong volumes and high prices, will drive a continued improvement in the current account over much of 2014,'' Ms Leung said.

SNZ said while there was the rise in goods exports, led by dairy, that was offset by an increase in New Zealand's investment income deficit as foreign-owned companies here earned their highest profits in four years, mostly due to higher profits in the corporate sector during the quarter to December.

Ms Leung said the investment income deficit was slightly higher than expected, at $2.6 billion, reflecting increased outflows on higher income earned from foreign investment in New Zealand.

''We expect further deterioration in the income balance over 2014 as the acceleration in New Zealand economic growth drives continued improvement in the profitability of New Zealand companies, which in turn will mean increased income outflows,'' she said.

ANZ chief economist Cameron Bagrie said the New Zealand dollar trade-weighted index was around post-float highs, commodity prices had peaked, domestic interest rates were rising and New Zealand's economic expansion looked domestic-demand-centric.

''Preventing a blowout in our external deficits will require the export sector to extract greater efficiencies, and ongoing [import] consumption restraint,'' Mr Bagrie said.

simon.hartley@odt.co.nz

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