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NZ: April trade balance stronger than expected

Data Flash (New Zealand)

NZ: April trade balance stronger than expected

Key Points

Statistics NZ reported a provisional merchandise trade surplus of $391m for the month of April compared with a deficit of $22m in April 2000. The average surplus for April over the past 10 years is $196m.

The result exceeded our bullish expectation of $285m, and was much stronger than the median market expectation of $175m. The annual deficit declined to $642m compared with a deficit of $1,055m in March.

Export values were very close to our expectations but much stronger than market expectations. The value of exports for the three months to April was 16.5% higher than a year earlier. Allowing for price movements, today's outcome is consistent with annual growth in export volumes of around 2%. A breakdown of the export data by category will be made available with the final trade release on 11 June.

Import values were lower than both the market and we had expected. The estimated level of imports for the three months to April was 5.3% higher than a year earlier. Excluding `lumpy' imports of capital transport and military equipment, `core' imports for the 3 months to April were 7% higher than a year earlier. Allowing for price movements, core import volumes remain very subdued, showing little if any growth.

Commentary

The latest data points to an export sector that continues to produce modest growth, notwithstanding a weaker global economy. Given the expected recovery in trading partner growth later this year and an exchange rate that remains stimulatory by any yardstick, we expect growth in export volumes to remain robust over the period ahead. Indeed, the risk is that volume growth surprises on the strong side, as the persistently weak NZD encourages more and more firms to expand their offshore markets.

The continuation of weak import growth, despite increasing evidence of a strengthening in domestic demand (as indicated by recent retail sales and house sales/building data), suggests that the stimulatory exchange rate is also leading to some substitution from imports towards domestically produced goods.

The improving trend in the annual current account deficit remains intact. We expect the annual current account balance to decline to around 4.7% 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 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 continue over coming months (with consequent risks for agricultural production later in the year).

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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