NZ's trade deficit narrowed on stronger export

New Zealand's trade deficit narrowed on stronger exports

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New Zealand’s trade deficit narrowed in November to NZ$269 million (J.P. Morgan -NZ$390 million, consensus -NZ$300 million) from NZ$495 million in the previous month. Imports headed south, as expected, but exports were higher, remaining resilient in the face of stronger NZD.

Exports rose to NZ$3.07 billion thanks to strengthening demand from New Zealand’s largest trading partners, especially Australia. Australia was the destination with the largest rise in exports over the month, up NZ$68 million. With respect to commodities, exports of milk powder, butter, and cheese, posted the largest fall, down 25%m/m. Our view is, though, that increased global demand for New Zealand’s soft commodities will support exports in 2010. As the world’s biggest importer of milk products, which account for a fifth of Kiwi exports, China’s role in New Zealand’s economic outlook is particularly important. Exports to China should continue to grow strongly due to the changing pattern of consumption and rising living standards, a consistent theme in many Asian economies.

Imports were down in November, falling to NZ$3.34 billion, owing to still-weak domestic demand. This was reflected in the drop in imports of consumption goods, down NZ$72 million. Most commodity imports also were lower. In the year ahead, import growth will remain relatively subdued as domestic demand recovers only gradually. Low interest rates and strong net migration inflows will support domestic demand, but any improvement will be curbed by rising unemployment and softer wage growth, at least in the opening six months of the year.

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