NZ trade surplus widened off weaker imports

NZ trade surplus widened off weaker imports in January

Click here for the full Note and disclosures.

New Zealand’s trade surplus surprisingly widened in January, printing at NZ$269 million (J.P. Morgan and consensus -NZ$100 million) from NZ$2 million in the previous month. The improvement in the trade balance was driven by substantially weaker imports.

Exports fell to NZ$3.15 billion over the month, although Statistics NZ notes that the trend in exports has been rising in recent months. This month’s decline emphasizes the risks to New Zealand’s fledgling recovery, but does not yet change our view that Kiwi exports should be supported by the rebound in global demand. Relative to January 2009, exports of milk powder, butter, and cheese were up 12%, logs, wood, and wood articles were up 30%, and crude oil exports jumped 270% (NZ$150 million in value terms).

Over the year to January, exports of milk powder, butter and cheese were down substantially, however (-12%). Dairy exports are a substantial contributor to national income-the hit this sector has taken in the past year has exacerbated the woes associated with the financial crisis and New Zealand’s home-grown recession. As we have indicated in previous releases however, most of the decline in New Zealand’s soft commodities was recorded early in 2009, and, on our view, increased global demand for New Zealand’s soft commodities will support exports in 2010. Also on the positive side, exports of fruit and wine both were up around 10% for the year to January.

Import values fell from NZ$3.1 billion to NZ$2.88 billion over the month, and were down 18% in the year to January. Not surprisingly, demand for capital related items like petroleum and products (-32%), mechanical machinery and equipment (-20%), and vehicles, parts and accessories (-35%) have suffered due to low capacity utilization and the lack of investment opportunities. On the consumption side, imports of textiles and textile articles (down 3%) and furniture, furnishings and light fittings (down 17%) have also been weak.

In other data released this morning, NZ building approvals fell 2.8%m/m in January (JP. Morgan -1.5%, consensus 2.2%), after a downwardly revised 3.5%m/m fall in December. Aside from the surprising jump in business confidence recorded in yesterday’s NBNZ survey, the recovery has cooled substantially in recent weeks, particularly in the housing market.

Today’s data will do nothing to change the RBNZ’s view that the cash rate can be held at current levels, for the moment, without risking a credit binge. Indeed, given this softening of the data, we recently revised our RBNZ forecast – we now expect the hiking cycle to commence with a 50bp hike in July (previously +25bps in April). Delaying the normalization of policy settings will ultimately cost the RBNZ time, necessitating more aggressive moves to get the cash rate back toward neutral.

Click to enlarge

Click to enlarge

Click to enlarge

ENDS

© Scoop Media