NZ's trade deficit widens more than expected

New Zealand's trade deficit widens more than expected in April

New Zealand's trade deficit widened to NZ$334 million in April (JPMorgan and consensus -NZ$150 million), marking the second straight monthly deficit. In March, a deficit of NZ$44 million was recorded (revised from - NZ$50 million), following a surplus of NZ$244 million in February.

In the 12 months to April, the deficit shrank to NZ$4.65 billion (JPMorgan -NZ$4.68 billion, consensus -NZ$4.42 billion) from a deficit of NZ$4.53 billion in the year to March. From a year ago, exports surged 19.7% to a record high, mainly owing to oil-related commodities, which have irregular monthly trade patterns. Crude oil exports were up NZ$265 million in April. Shipments of milk powder, butter and cheese were also up strongly, rising NZ$131 million. On the other side of the trade ledger, imports spiked 22%oya in April, a rise also attributed to oil-related commodities, including two large items - an oil platform and an oil production vessel - totaling NZ$477 million.

Looking ahead, imports will likely moderate significantly in coming months, reflecting the recent weakness in domestic demand. Going into 2009, however, import growth may pick up owing to a weaker NZD and as domestic demand starts to recover as the RBNZ starts lowering interest rates. We expect that the RBNZ will start easing monetary policy in 4Q, with a 25bp rate cut forecast in October and another in December. While the nation's export competitiveness should favour from the anticipated deprecation of the Kiwi dollar, the impact of the recent drought on agricultural exports remains a key downside risk to the export outlook, as does a sharper than expected slowdown in global demand.

• A trade deficit of NZ$334 million was recorded in the April month. This accounted for 8.8% of exports.
• Merchandise exports rose 19.7%oya, owing mainly to shipments of crude oil, and milk powder, butter and cheese.
• Merchandise imports increased 22%oya, owing to imports of two large oil-related items with a combined value of NZ$477 million.

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