Merchandise Trade Balance (September 2001)

Data Flash (New Zealand)

Merchandise Trade Balance (September 2001)

Key Points

A provisional merchandise trade deficit of $53m was recorded in September, compared with a deficit of $609m in September 2000. The average deficit for September over the past 10 years is $279m. The annual trade surplus was $868m, compared with a deficit of $3,145m a year earlier.

The result was much better than the median market expectation of a $365m deficit (Dow Jones poll) and our own expectation of a $270m deficit. While export values were broadly in line with our expectations, import values were exceptionally weak despite a very sharp rebound in oil imports during the month.

The value of exports for the three months to September was 12.9% 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 4% annual rate. A breakdown of the export data by type will be released on 9 November.

The estimated level of imports for the three months to September was just 0.3% higher than a year earlier. Excluding `lumpy' imports of capital transport and military equipment, `core' imports for the 3 months to September were 1.9% higher than a year earlier. Allowing for price movements, core import volumes appear to be growing at around a 2% annual rate - less than the rate of GDP growth over the same period.

Commentary

As noted above, import values in the month of September were exceptionally weak. This weakness was widespread across the various categories, with imports of plant and machinery, intermediate inputs and consumption goods all substantially weaker than in the same month last year. We think this outcome reflects a number of factors.

There is increasing evidence of a trend decline in the import penetration rate, reflecting the impact of the weak NZD on the competitiveness of local producers. The New Zealand Customs Service's practice for converting foreign currency amounts into NZ dollars means that the NZD value of imports in September is probably understated. Although the average NZD/USD exchange rate in September was 2.8% lower than in August, the Customs Service recorded a 5.3% appreciation for conversion purposes (reflecting their use of a pre-11 September exchange rate).

The terror attacks in the US may have impacted on trade flows. This includes the direct impact due to the disruption to air travel and, perhaps late in the month, the cancellation of import orders as businesses became concerned about the impact of global recession on the outlook for the New Zealand economy. Imports from the US were very weak in September, being some 41% lower than the same month last year, although September 2000 imports were inflated by the import of a large aircraft and substantial imports of telecommunications equipment.

There appears to have been a genuine weakening in the pace of growth in domestic demand over the past month or two with retail sales, job ads and now imports all printing weaker than earlier in the year (yesterday's building consents data was also weaker than expected). In light of the 11 September attacks and the considerable worsening in the global economic outlook, this trend looks set to continue over the next six months at least. Indeed, we would not be surprised if GDP growth in Q1 2002 is flat or mildly negative.

Today's result remains consistent with the trend improvement in New Zealand's current account deficit that we have been forecasting for some time. Our preliminary estimate for the Q3 current account balance is an annual deficit of NZD4.2bn or 3.7% of GDP, compared with 4% of GDP in Q2 and 6.7% of GDP in Q3 2000.

Next Trade Release: August (Exports), 9 November

Darren Gibbs, Senior Economist, New Zealand

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