Overseas Merchandise Trade (June, Final)

Key Points

- A merchandise trade surplus of $139m was recorded in June. A provisional surplus of $110m had been reported on 26 July. The average surplus for June over the past 10 years is $132m. The trade deficit for the year to June was $22m, $29m lower than previously reported.

- The value of exports for the three months to June was 20.0% higher than a year earlier. We think that favourable price movements - driven by increases in world prices and the weaker NZD - explain the bulk of this growth. However, we estimate that the volume of exports rose by around 3% qoq in Q2.

- The value of imports was unchanged from the estimate published on 28 June. Allowing for price movements, core import volumes remain relatively subdued. However, we estimate that import volumes rose by a little over 2% qoq in Q2.

Commentary

- The new information in today’s release was the composition of export receipts during June. While non-primary exports were marginally stronger than in recent months, a very strong decline was reported for Q2 as a whole. For example, exports of mechanical machinery and equipment fell 7% qoq while exports of electrical machinery and equipment declined by 11.9% qoq. Clearly the global slowdown and, in particular, the marked reduction in spending on capital goods, is having a significant impact on the fortunes of this sector. Overall exports rose 6.6% during the quarter, driven by extremely strong growth in commodity exports.

- At its 4 July review, the RBNZ noted that “the fact that export volumes have not responded strongly to the low dollar and high world prices may mean that the global slowdown is having more impact that previously thought” - a risk that might warrant a further OCR reduction on 15 August.

- Today’s release will not have eased the Bank’s concerns on this score. But as we have argued elsewhere, and as further illustrated by the strong very Household Labour Force and Retail Sales reports this week, the resurgence in domestic demand is more than taking up the slack.

- Our view remains that the RBNZ will refrain from easing further on 15 August. With two further opportunities left this year to shift rates downward if needed, we see little imperative to ease policy at this point. We think that the chance of a further 25bps cut on 15 August has reduced further and is now no higher than 20%. We expect the next poll of market economists to show a marked reduction - if not total abandonment - of support for a rate cut next week.

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