Merchandise Trade Balance (July 2002)

Tue, 27 Aug 2002

Data Flash (New Zealand)
Merchandise Trade Balance (July 2002)

Commentary

July is the first month of the traditional deficit season that occurs as farm exports wind down through the winter and imports begin to wind up in anticipation of the summer/Xmas season. This July's deficit of $226m was higher than the 10Y average deficit of $167m.

The July deficit exceeded both market and Deutsche forecasts (market -$54m, DB -$110m). Relative to our expectations, exports printed just a touch stronger than we had allowed for (a breakdown is unavailable until next month). Imports were quite a bit stronger than we had estimated, however, bouncing back more forcefully following a weaker than expected outcome in June.

An unexpected surge in car imports to an historic high level and the unforeseen importation of a medium-sized aircraft contributed substantially to the strong outcome. Imports of consumer goods were also very robust, rising some 4% above year earlier levels despite a 10% appreciation of the trade-weighted NZD over this period.

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 (indeed, July's larger than expected deficit merely offset a larger than expected surplus in June). Therefore, our view regarding the broad trends developing in New Zealand's external accounts is unchanged by today's data.

After declining to a 13-year low of 2.2% of GDP in the year to March 2002, the current account deficit is forecast to widen to over 4% of GDP in the year to March 2003. This deterioration reflects our expectation of a decline in the terms of trade (due in large part to weak prices for dairy products) and weak growth in net exports (due to the lagged impact of still sub-par world growth, still robust domestic demand, and a gradually appreciating NZD). The average deficit over the past 20 years is around 4.8% of GDP.

Key Points

A provisional merchandise trade deficit of $226m was recorded in July, compared with a deficit of $28m in July 2001. The average deficit for July over the past 10 years is $167m.

The annual trade surplus was $257m. This is the lowest surplus since last July and compares with a surplus of $457m in June. We expect the annual balance to move into deficit in September.

The value of imports for the three months to July was 3.4% lower than a year earlier. Over the same period, the trade-weighted exchange rate appreciated by 10.4%. Given a small fall average `world' prices, import volumes are estimated to have increased by around 8% yoy.

The value of exports for the three months to July was 6.0% 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 (in the order of 2-3% yoy).

Darren Gibbs, Senior Economist, New Zealand

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