New Zealand’s trade balance

With the external exams coming up next term it is useful to be able to have some knowledge of New Zealand’s trade position especially as it is so important to the economy. Trade is just one of four accounts in the Current Account of a country.

• Balance of trade in Goods  – also know as visibles. E.G. Manufactured goods, Semi-finished goods, energy products, raw material, consumer goods and capital goods. The difference between visible exports (+) and imports (-) is sometimes known as the ‘Balance of Trade’. See image below for exports and destination.

• Balance of trade in Services – Invisibles. E.G. Tourism, Banking, Shipping and Transport, Education, etc. The difference between invisible exports (+) and imports (-) is Balance on Services.

• Balance on Primary Income – measures two main flows of income into and out of NZ: the compensation of employess – wages and salaries and investment income – Interest Profits and Dividends coming into NZ from NZ assets owned overseas matched against the outflow of profits and other income from foreign owned assets located within NZ.

• Balance on Secondary Income – this includes payments made and receipts received for which there is no corresponding exchange of actual good or service. They include government transfers such as payments to and receipts from international organisations and foreign aid. Transfers by private individuals are also included in this part of the current account – workers’ remittances (transfer of money from people working in a foreign country.

New Zealand’s annual current account deficit was $33.0 billion for the year ended in the March 2023 quarter (8.5 percent of GDP), having peaked at $34.4 billion in the previous quarter (9.0 percent of GDP). The deficit has risen significantly in the past 2½ years, rising by $30 billion due to goods imports rising to a larger extent than exports, and an increase in service imports. New Zealand’s merchandise terms of trade, the volume of imports that can be purchased with a fixed volume of imports, rose by 0.4 percent in the June 2023 quarter. This was due to import prices falling to a larger extent than export prices in the quarter. The cost of imported petrol and petroleum products fell for the third consecutive quarter, falling by a further 6.6 percent in the June quarter. The Ministry for Business, Innovation and Employment reported that New Zealand earned $2.1 billion from international tourists in the June quarter according to its International Visitor Survey. This was a reduction from $3.2 billion of earnings in the March quarter, mainly due to the seasonal nature of international tourist arrivals.

Outlook New Zealand’s current account deficit is expected to slowly improve as international tourist numbers improve with the border open, and as household consumption growth eases due to higher borrowing (i.e. mortgage) rates. The International Monetary Fund has forecast a deficit equivalent to 7.8 percent of GDP for the 2023 calendar year.

Sources:

Monthly Economic Review – NZ Parliamentary Library – September 2023

https://oec.world/en/profile/country/nzl

Sign up to elearneconomics for comprehensive key notes with coloured illustrations, flash cards, written answers and multiple-choice tests on Trade that provides for users with different learning styles working at their own pace (anywhere at any time).