Merchandise Trade Balance (June 2002)

Data Flash (New Zealand)

Merchandise Trade Balance (June 2002)

Result: A trade surplus of $293m was recorded in June, well above market expectations of an $80m surplus. Implication for markets: There was no discernible market reaction to the outcome.

Commentary

The June trade data again surprised on the positive side, the $293m surplus even surpassing our top of the market forecast of $205m (market: $80m). Exports printed very close to our expectations. However, imports were somewhat weaker than we had estimated.

Given the volatility of monthly trade data we prefer to take a cautious approach when analysing these data. The forecast error was well within the usual tolerance. Therefore, our view regarding the near-term prospects for New Zealand's external accounts is unchanged by today's data.

The strong June surplus has meant that the trend deterioration in the annual trade balance took a breather in June. However, we expect the trend to resume in July. Indeed, by September, we expect the annual trade balance to be marginally in deficit (using the merchandise trade definition, but not the current account definition).

As a result, after declining to 2.2% of GDP in the year to March 2002, the current account deficit is estimated to have risen to 2.4% of GDP in Q2. A further rise to over 4% is expected by early 2003, reflecting a deterioration in the terms of trade (largely reflecting weak prices for dairy products) and weak growth in net exports.

The data imply that both export and import volumes grew strongly in Q2 - exports more so (in part reflecting the running down of stock levels in the commodity sector).

At this stage, we remain comfortable with our forecast that the economy expanded by around 1% qoq in Q2, virtually unchanged from the 1.1% qoq growth recorded in Q1.

Key Points

A provisional merchandise trade surplus of $293m was recorded in June, compared with a surplus of $148m in June 2001. The average surplus for June over the past 10 years is $124m.

The annual trade surplus was $459m. This compares with a surplus of $313m in May and a surplus of $73m a year earlier.

Taking the data at face value, although import values were lower than forecast, current values remain at robust levels considering the substantial appreciation of the NZD over the past year. The value of imports for the three months to June was 2.4% higher than a year earlier. Over the same period, the trade-weighted exchange rate appreciated by 9.6% (note, however, that the methodology employed by Statistics NZ to convert foreign currency import receipts is unlikely to have captured the sharp run-up in the NZD in June). Given almost no change in average `world' prices, import volumes are estimated to have increased by around 8% yoy and by around 3-4% qoq during Q2 (similar to growth in Q1).

The value of exports for the three months to June was 4.3% lower than a year earlier. The strengthening NZD is the key factor pushing annual growth into negative territory with the fall in spot prices for dairy commodities not yet fully reflected in the trade data (the impact will be more obvious over the coming season). Volume growth remains moderate, although strong growth does appear to have taken place in Q2.

Darren Gibbs, Senior Economist, New Zealand

***The attached research constitutes Deutsche Bank's proprietary information*** This, along with an extensive range of other publications, is available on our web site http://research.gm.db.com

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