NZ Trade Balance Returns To Surplus

NZ Trade Balance Returns To Surplus

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New Zealand’s trade balance surprisingly returned to surplus in December, printing at NZ$2 million (J.P. Morgan -NZ$200 million, consensus -NZ$100 million) from -NZ$269 million in the previous month. Exports improved, as expected, but imports also were higher.

Exports rose to NZ$3.41 billion over the month, but were down nearly 3% over the quarter, which marked the fourth consecutive quarterly decline. Over the year to December, exports of milk powder, butter and cheese declined 25%, crude oil was down 38%, while meat was essentially flat. Exports of wine (+12%), preparations of cereals, flour and starch (+20%), and fruit (+11%) on the other hand all increased over the year. It should be noted that the majority of the decline in New Zealand’s soft commodities was recorded early in the year, and, on our view, increased global demand for New Zealand’s soft commodities will support exports in 2010.

Over the December quarter, import values were down 3%. For the twelve months to December, imports of investment related products, in particular mechanical machinery and equipment (-19%), petroleum and products (-33%) and vehicles, parts and accessories (-36%) suffered due to the continued drag from New Zealand’s prolonged recession over 2008-09. Statistics NZ did note however that the decline in import (and export) trends appears to have eased in recent months. This squares well with the recent strength of consumer demand evidenced in November’s retail sales report.

In other data released this morning, NZ building approvals were down 2% in December. However, this series is notoriously volatile, and Statistics New Zealand advocate use of the trend measure, which continues to rise due to the previous five consecutive monthly increases in the seasonally adjusted series. The steadily improving trend in building approvals is consistent with house price data and Reserve Bank commentary suggesting a recent turnaround in the Kiwi housing market. The central bank will be watching the housing market closely in coming months for evidence of a sustained increase in activity which would add to inflation concerns.

The RBNZ yesterday left the cash rate on hold at 2.5%, and mantained their guidance for policy stimulus to be removed “around the middle of 2010”. However, mention of the elevated level of NZD, a factor the central bank had often cited as a constraint to the recovery, was conspicuous in its absence. Clearly, officials’ concern that the export sector may be hamstrung by the currency is fading, with the Kiwi economy garnering momentum over the past few months. The lack of a downside from the currency, and the recent turnaround in the housing market will add to the wariness of RBNZ officials regarding the maintenance of a historically low cash rate with medium term inflationary pressures mounting. We maintain that the next tightening cycle will begin in April, slightly before current guidance suggests.

ENDS

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