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Overseas Merchandise Trade (Imports, August)

Data Flash (New Zealand)

Overseas Merchandise Trade (Imports, August)

Key Points

Statistics NZ reported a provisional trade deficit of $345m for the month of August compared with a revised deficit of $137m in July. The annual deficit was $3,093m in August, compared with $3,174m in July. The provisional outcome represents a $81m improvement compared with the deficit of $426m reported in August 1999. Due to seasonal factors, large deficits are common at this time of the year - the average deficit for August over the past 10 years is $208m.

The overall trade deficit was in line with the median market expectation for a deficit of $349m. However, both imports and exports were much stronger than the market expected, probably reflecting an underestimation of the impact of the weakening exchange rate on the estimated NZ dollar value of exports and imports.

Over the past eight months, exports have tended to be revised up $25-50m with the release of the final estimate (due to processing errors, last month saw a $170m upward revision but steps taken by Statistics NZ suggest that errors of this magnitude are unlikely to be repeated). A continuation of this trend would see the final trade balance improve marginally when the final August merchandise trade estimates are published on 10 October.

Following a weaker than expected July, exports have rebounded in August. The estimated level of exports in August was 27.7% higher than a year earlier, while exports for the three months to August were 24.0% higher than a year earlier. We estimate that around 17% of this movement reflects higher prices, with the remainder reflecting higher volumes. Detailed export data will be made available with the final trade release.

Import values in August were 19.1% ahead of the same month last year, while imports for the three months to August were 17.3% higher. As the table below shows, imports of oil were especially strong in August, reflecting not just higher prices, but a 60% rise in volumes compared with the 12 month average. It seems reasonable, therefore, to expect lower oil imports in September.

Imports of consumption and other intermediate goods were also quite strong.

However, our estimates suggest that almost all of the annual growth in imports can be explained by higher prices. This suggests that import volumes are broadly static, in keeping with recent trends in domestic demand.

Market reaction: there was no reaction to the data.

Commentary

Today's outcome was broadly in line with our expectations. Consequently, we continue to remain confident that the trend improvement in the trade balance remains intact and that this will lead to an improvement in the current account balance over the next year or so. We expect the current account deficit to remain at around 7% of GDP until Q4 2000, at which time the impact of on the trade balance of unusually strong imports in Q4 1999 (due to the importation of a frigate) will drop out of the annual calculation. We expect the current account deficit to decline to 5.5% of GDP by March 2001 and 3.9% of GDP by March 2002. The average deficit over the past 15 years has been 4.7% of GDP.

Darren Gibbs, Senior Economist, New Zealand


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