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Data Flash (NZ) Overseas Merch Trade

Data Flash (NZ) Overseas Merch Trade (Imports, Dec) 29/01/01

Data Flash (New Zealand) Overseas Merchandise Trade (Imports, December) Key Points

* Statistics NZ reported a provisional trade deficit of $54m for the month of December compared with a deficit of $1,079m in December 1999. The average deficit for December over the past 10 years is $55m. The annual deficit was $1,562m compared with a deficit of $3,573m a year earlier.

* The market expectation had been for a deficit of $188m. The better than expected result can be traced to lower than expected import values, with imports of consumption goods especially weak (albeit following strong outcomes in the previous two months). Export values were in line with expectations.

* For Q4 as a whole, the trade deficit was $674m, compared with a deficit of $2,255m a year earlier. Around $1,000m of the $1,581m improvement reflects lower imports of capital transport (largely aircraft) and military goods (a $631m frigate was imported in December 1999). The remainder reflects the underlying improvement in the trade balance.

* The value of exports in December was 28.8% higher than a year earlier, while exports for the three months to December were 31.6% higher than a year earlier. We estimate that export prices in Q4 2000 were around 22% higher than a year earlier, implying growth in export volumes of around 8-10% yoy. A breakdown of the export data will be made available with the final trade release on 13 February.

* As a result, exports will have made a sizeable contribution to overall GDP growth during Q4, more than offsetting a contraction in retail spending. Our preliminary forecast for Q4 GDP growth remains 0.5% qoq.

* The estimated level of imports in December was 13.7% lower than a year earlier, while imports for the three months to October were 4.5% higher than a year earlier. Both these comparisons are impacted by `lumpy' imports of capital transport and military equipment. Excluding these items, `core' imports in December were 15% higher than a year earlier and 20% higher for Q4 as a whole.

* We estimate that import prices in Q4 2000 were around 20% higher than a year earlier. This implies that core import volumes were broadly flat, in keeping with subdued consumer demand and a sharp decline in building activity.

Commentary * The latest outcome, which was slightly better than are own forecast of a trade deficit of $145m, reinforces our belief that the conditions are in place for a significant improvement in the current account deficit, driven largely by an improving trade balance.

* The forecast improvement reflects our expectation of: - continued strong growth in export volumes, driven by strong growth in commodity exports, a competitive exchange rate and continued growth in the economies of our major trading partners (albeit less rapid than forecast earlier due to deteriorating prospects in the US); - relatively subdued growth in import volumes, due to weak domestic demand and import substitution; and - the full-year impact of the recent recovery in the terms of trade, driven by higher prices for export commodities and a significant fall in oil prices.

* We expect the current account deficit to have declined from 6.4% of GDP in Q3 2000 to 5% of GDP in Q4 2000 (data due for release 23 March). A further decline to around 3% of GDP appears achievable, perhaps as early as Q1 2002. The average deficit over the last 18 years has been 4.9%.

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