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NZ March trade balance weaker than expected


Data Flash (New Zealand)

NZ March trade balance weaker than expected

Key Points

Statistics NZ reported a provisional merchandise trade surplus of $74m for the month of March compared with a surplus of $35m in March 2000. The average surplus for March over the past 10 years is $200m. The median market expectation had been for a surplus of around $196m. The annual deficit declined slightly to $1,081m compared with a deficit of $1,120m in February.

Export values were very close to expectations. Thus import values, which have been very volatile over the first three months of this year, were once again the key source of surprise. Following an extremely weak February, import levels bounced back to some extent across most categories. In particular, we draw attention to the impact of a strong surge in imports of crude oil and motor vehicles (the latter the second strongest month on record) and the import of a plane worth a little over $90m. Imports of capital plant and machinery recorded a modest bounce-back in line with expectations, but over Q1 as a whole was 16.6% lower than in the previous quarter.

The value of exports for the three months to March was 18.4% higher than a year earlier. With export prices now estimated to have increased by around 16% over the same period, today's outcome suggests that export volumes expanded at an annual rate of just 2%. A breakdown of the export data by category will be made available with the final trade release on 15 May, but the Statistics New Zealand's estimate of the price/volume split will not be published until 11 June.

The estimated level of imports for the three months to March was 11.6% higher than a year earlier. Excluding `lumpy' imports of capital transport and military equipment, `core' imports for the 3 months to March were 10.6% higher than a year earlier. We now estimate that import prices rose by around 9% over the same period, implying that core import volumes expanded by a little over 1%.

Commentary

As we suspected, a large part of the extreme weakness seen in the February trade figures seems to have reflected the volatility often seen in monthly trade data, rather than indicating renewed weakening in domestic demand. The trend in imports of capital equipment remains a little disappointing. However, the latest figures need to be seen in the context of very strong growth in 2000 (national accounts data suggests that the volume of plant and machinery investment increased 27% between Q4 1999 and Q4 2000). Export values, while in line with expectations, remain relatively disappointing, notwithstanding the current economic weakness evident in many of New Zealand's trading partners.

Nonetheless, despite the worse than expected trade balance, the improving trend in the annual current account deficit remains intact. We expect that annual current account balance to decline to around 4.9% of GDP in Q1 2001 and to around 4% of GDP during the second half of 2001. Thereafter, the prospects for further improvement will depend on a number of factors. These factors include the shape of the recovery in the economies of New Zealand's major trading partners (especially the US and Australia), the extent to which New Zealand producers can gain market share (assisted by the weak NZD) and the degree to which drought conditions intensify over coming months (with consequent risks for agricultural production later in the year).

On a seasonally adjusted basis, import values fell 7.8% qoq in Q1 whereas export values fell 2.6% qoq. We forecast only a small decline in the terms of trade during Q1 (export prices are estimated to have fallen by around 7% qoq while import prices have likely to have by 6% qoq, both largely reflecting the recovery in the NZD during Q1). Even after allowing for adjustment to National Accounts concepts, we expect net exports to make a solid positive contribution to GDP growth in Q1.

We have revised up our preliminary estimate for GDP growth in Q1 to 0.8% qoq in light of evidence of stronger than expected agriculture sector output in March (previously we saw this sector making a negative contribution to growth in Q1).

Darren Gibbs, Senior Economist, New Zealand

This, along with an extensive range of other publications, is available on our web site http://research.gm.db.com

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