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Overseas Merchandise Trade - January 2000

Data Flash (New Zealand) Overseas Merchandise Trade - January 2000

Key Points

Provisional data for the month of January recorded a zero trade balance - compared to market expectations of a $250m deficit. The annual deficit fell to 3.3% of GDP, down from a record 3.6% during the year to December.

The surprisingly good January result was caused by a significant downward correction in imports, which followed a surge during the last quarter of 1999. The latter had been driven by a strong underlying trend on the back of a buoyant domestic economy, but was reinforced by the influence of higher oil prices, Air New Zealand's fleet replacement program, Y2K effects, as well as the importation of a naval frigate from Australia.

The fact that the January slowdown in imports was spread across all import categories supports our view - based on retail sales and labour market indicators - that GDP growth softened somewhat in the first few months of this year. Our GDP forecast for Q1 is +0.7% qoq. However, such a slowdown should be seen as a temporary development, with medium-term growth fundamentals looking very positive.

Relative to the rise in commodity prices (the ANZ index rose by 16% over the past year) and anecdotal evidence of record agricultural production, the export performance has remained somewhat disappointing - with the January value of exports up only 15.5% relative to January 1999.

However, considering seasonal influences on commodity exports, we expect the rise in production volumes soon to be reflected in the trade data. The acceleration in value growth should be reinforced by a sharp rise in prices actually received by exporters. The latter seem to follow spot price trends with a reasonable lag (see chart).

With export growth accelerating and signs that import growth may return to more sustainable rates, we forecast the trade deficit to improve by around 2% of GDP over the next year.

As a result, the current account deficit, which is estimated to have peaked at 8.2% of GDP late last year, should improve to 6.7% by late 2000.

The improvement in the external balance will reduce some of the negative sentiment with respect to the NZD, which is consistent with our forecast of an appreciation to around 0.5500 cents against the USD over the next twelve months.

The NZD strengthened from 0.4860 to around 0.4900 in response to today's numbers.

Ulf Schoefisch, Chief Economist, New Zealand (64) 9 351 1375

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