Overseas Merchandise Trade (July Fnal)
Data Flash (New Zealand)
Overseas Merchandise Trade (July final) Key Points
* The preliminary export estimate for July was subject to an unusually large revision of +$180m to $2,300m.
* While the reporting of the provisional figure on 24 August had caused a further NZD sell-off, the fx market hardly registered today's better-than-expected announcement, thus highlighting the currently bearish sentiment towards the kiwi.
* With no changes to the import figures, the export revision led to an improvement in the monthly trade deficit from $330m to $150m. The deficit for the year to July was $3,187m.
* The value of exports in July was only up 14.1% on last year, which is a significant decline from the 31.1% increase recorded for the June. We do not see that difference as evidence that the export recovery is stalling, but attribute it to timing. While the June increase overstated the underlying trend, the July figure understates the momentum in the export sector.
* The 24.5% export value growth recorded for the three months to July over the corresponding period last year is the more relevant figure. We estimate that export prices have increased by around 12-13% over that period, which implies a healthy 12% volume increase.
* The main contributors to the export performance have been the commodity sectors, although parts of manufactured exports have also performed strongly. For example, the value of electrical machinery was up 30.8% on last year, while mechanical machinery exports increased by 19.2%.
* In terms of key destinations, the value of exports to Asia recorded the strongest growth rate (+34.8%), followed by the US (+25.0%). The comparatively small change in the NZD/Euro cross over the past year probably explains why the value of exports to Europe is up by only 11.2%.
* As reported at the time of the provisional trade data release, import growth continues to slow despite the soft NZ dollar, which reflects relatively stagnant domestic demand.
Today's trade figures confirmed that the merchandise trade balance is on a gradual upward trend. However, the further drop in the NZ dollar since July suggests that the pace of improvement will remain relatively slow for the foreseeable future. The positive differential in volume growth between exports and imports is being offset by the adverse relative valuation influence arising from the weaker currency. Nevertheless, our forecasts are for a significant closure of the trade gap in 2001, due to the combination of continued export stimulus, a relatively subdued domestic demand profile, as well as some modest recovery of the NZD.
Ulf Schoefisch, Chief Economist, New Zealand
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