NZ: Overseas Merchandise Trade (July, Final)

Data Flash (New Zealand)

NZ: Overseas Merchandise Trade (July, Final)

Key Points

A merchandise trade deficit of $42m was recorded in July. A provisional deficit of $46m had been reported on 27 August. The average deficit for July over the past 10 years is $150m. The trade surplus for the year to July was $45m, $20m lower than previously reported due to revisions to earlier data (the June surplus was revised down by $35m).

The value of exports for the three months to July was 19.2% 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, with the volume of exports expanding at around a 3% yoy pace.

The new information in today's release was the composition of export receipts during July which, in aggregate, were stronger than we had expected.

The stronger than expected aggregate result was due mainly to continued strong performance in the dairy sector (eg casein exports are still running 80-90% above year-earlier levels) and a recovery in exports in the forest products sector (possibly reflecting improving activity levels in the Australian construction sector).

Encouragingly, growth in exports of machinery items also appears to be improving with annual growth returning to double-digit levels in July for the first time since March.

The value of imports was unchanged from the estimate published on 27 August. The estimated level of imports for the three months to July was 10.3% higher than a year earlier. Excluding `lumpy' imports of capital transport and military equipment, `core' imports for the 3 months to July were 9.2% higher than a year earlier. Allowing for price movements, core import volumes now appear to be growing at around a 3% annual rate - broadly in line with growth in the overall economy.

Commentary

The deficit in July, which is likely to be maintained over the balance of this year, reflects the beginning of the usual seasonal wind down in commodity exports and gearing up of pre-Xmas imports. The monthly trade balance has bettered its year-earlier level in each of the last 10 months.

?Today's result remains consistent with a trend improvement in New Zealand's current account deficit. We expect the annual deficit to nudge just below 4.0% of GDP in Q2, from 4.8% in Q1. These figures will be reported on 27 September. A further reduction towards 3% of GDP is expected by year-end.

Next Release: August Prov. (27 September). Preliminary Estimate, Trade Balance: -$170m mth/+$246m ann

Darren Gibbs, Senior Economist, New Zealand

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