Current account deficit eases, but still huge at nearly $28b

New Zealand’s current account deficit eased to $27.8 billion in the 2023 calendar year, from the record $33.4b deficit recorded in 2022.

The figures released by Stats NZ yesterday mean that during the two-year period, New Zealanders spent more than $61b more than they earned overseas.

While the deficit narrowed by $5.6b between the two years, only about $300 million of that was due to an improvement in the gap between the value of physical goods imported and exported.

The goods deficit was still stubbornly high at $12.2b in 2023. Instead, the relative improvement was mainly driven by the pick-up in international tourism.

“Tourism exports,” which mainly represents spending by overseas visitors while in New Zealand, rose by $6.8b to $12.9b.

Somewhat offsetting that, on the negative side of the ledger, “tourism imports” – mostly spending by Kiwis holidaying overseas – rose by $2.5b.

Non-obvious reasons for the still-high current account deficit included a $700m increase in insurance services imports.

Stats NZ manager Paul Pascoe attributed this to the “rising reinsurance costs to New Zealand insurers following extreme weather events” last year. Despite the deficit, the New Zealand dollar has largely held its ground and traded within a relatively narrow range between US 59cents and US64c for most of the past two years.

ANZ chief economist Sharon Zollner said credit ratings agencies were cutting the country a bit of slack.

“They know, for example, that tourism is rebounding strongly, and that hasn't really quite shown up in this data yet, but it's coming. They also know that consumption and investment goods imports are slowing as the domestic economy cools.”

New Zealand was making good progress towards “living within our means again”, Zollner said.

“It's not a fun process, of course, pulling our heads in.”