Current account deficit widens

A recovery in imports of cars and crude oil has not been enough to prevent New Zealand’s seasonally adjusted current account deficit widening by $1.6 billion to $2.1b in the December 2020 quarter, according to Stats NZ.

Darren Allan, international statistics senior manager, says: “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.

“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.”

The decline in car imports around the time of the coronavirus lockdowns was also a major factor as the annual current account deficit for the year ended December 2020 was $2.5b, 0.8 per cent of GDP, the smallest in almost 19 years. 

This compares with a deficit of $10.6b, or 3.3 per cent 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,” says Allan.

“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.”

Imports stay low

For the third quarter in a row, on a seasonally adjusted basis, New Zealand exported more goods than it imported in the final three months of 2020. However, as imports recovered, the goods surplus narrowed to $215 million in the quarter.

Imports of goods were $14.5b, up by $1b 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,” explains Allan.

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

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

Allan adds New Zealand also had a services balance deficit for the second time in 2020, with Covid-19 travel restrictions causing a sharp drop in overseas visitors.

Over the past 20 years, New Zealand typically earned more from selling services overseas, such as 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 $677m, compared with a $389m surplus in the September 2020 quarter. 

This was driven by services exports hitting their lowest level since the December 2001 quarter after falling $733m to $3.4b.

Services imports increased $333m in the December quarter, travel imports rose $80m, and transport imports grew by $78m.