New Zealand’s annual current account deficit totalled $10.6 billion in the year ended March 2019, up from $8.5 billion a year earlier. As a proportion of GDP, the current account deficit was equivalent to 3.6 percent in the year ended March 2019.
For the NZ Economy the persistent trade deficit has a number of potential causes both short and long term:
- High propensity to buy imported goods and services – there is a tendency for NZ consumers to prefer foreign produced output and in a consumer boom we often see an acceleration in the volume of imports coming into the country
- Lack of productive capacity of NZ firms – if home producers have insufficient capacity to meet demand from consumers then imports will come in to satisfy the excess demand
- Poor price and non-price competitiveness of NZ firms – Cost levels and NZ prices relative to international competitors can measure competitiveness, but non-price factors are also important. These include quality, design, reliability and after-sales service
- Declining comparative advantage in many areas – the advantages that countries have in producing certain goods and services change over time as technology alters and other countries exploit their economic resources and develop competing industries. NZ manufacturing industry has suffered over the years from low cost production in newly Industrialising countries and from other parts of Asia.
- An over valued exchange rate – Some economists suggest that trade problems stem from the exchange rate being at too high a level. This causes NZ export prices to be higher in foreign markets whilst imports into the NZ become relatively cheaper.
- The strength of the NZ$ over recent years has made life difficult for NZ exporters in overseas markets. This is because a rise in the value of NZ$ leads to a rise in the foreign price of NZ exported goods and services. When NZ prices are higher, foreign consumers are less likely to buy our products. The high exchange rate also makes imported goods cheaper inside the NZ. This leads to a rise in the volume of imports and a fall in the share of the NZ market taken up by goods and services from overseas