New Zealand's annual trade deficit

New Zealand's annual trade deficit narrowest in over five years

• May trade surplus widened markedly
• Imports down sharply, while exports rose
• Annual trade gap narrowed as imports slumped

New Zealand’s trade balance remained in surplus for the fourth straight month in May, widening markedly to NZ$858 million (J.P. Morgan NZ$150 million, consensus NZ$250 million) from an upwardly revised NZ$319 million in April. The rise in the surplus, which equated to 21.7% of exports, resulted mainly from a large drop in imports. Exports rose modestly. The annual trade deficit was the narrowest in more than five years, with the shortfall shrinking to NZ$3 billion in the year to May.

Imports tumbled 21%oya in May, marking the largest fall since February 1993. The main drivers were lower imports of petroleum and petroleum products, vehicles, parts and accessories, fertilizers, and aircrafts and parts, which all recorded falls of over 40%oya and large declines in NZD-terms. Statistics New Zealand (SNZ) said that the fall in vehicle sales accounted for more than 60% of the fall in total imports in May, reflecting significantly weaker domestic demand.

The value of merchandise exports rose 6%oya in May. Exports to China, New Zealand’s fourth largest export destination, accounted for 80% of the increase, with exports to China surging 97% thanks to an increase in dairy shipments. This is positive news in light of recent upgrades to our China growth forecasts for 2009 and 2010 (see this week’s GDW). Milk powder, butter, and cheese exports rose a solid 19%oya, though part of this increase owed to a low base, with below average exports of whole milk powder recorded in May 2008. Exports of logs, wood and wood articles were also strong, rising 32%oya.

The next economic data point to look out for is tomorrow’s NBNZ business confidence survey for June. We should see a mild improvement in confidence amid signs of green shorts offshore and the stronger Kiwi dollar. Still, any improvement will be capped by expectations that the forecast recovery in New Zealand (which we expect will get underway in 4Q09) will be modest. The main risk to the recovery, in our view, is the strengthening NZ dollar, which is hampering export growth and fuelling a broader tightening in financial market conditions.

Full NZ Trade Data (PDF)

ENDS

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