Overseas Merchandise Trade (September, Final)

Data Flash (New Zealand) Overseas Merchandise Trade (September, Final)

Key Points A merchandise trade deficit of $590m was recorded in September, unchanged from the provisional estimate reported on 26 October. The average deficit in September over the past 10 years is $221m (September 2000 was impacted by the import of aircraft worth $229m). The deficit for the year to September was $3,115m.

The estimated level of exports in September was 22.1% higher than a year earlier, while exports for the three months to September were 20.8% higher than a year earlier. We estimate that around 17% of this movement is due to higher export prices, with the remainder reflecting higher volumes. As the table below shows, growth in export values has been strong more-or-less across the board, with particularly strong growth seen in exports of dairy products. Exports of mechanical and electrical machinery also appear to be strengthening.

In terms of key destinations, strong growth continues to be recorded in the value of exports to Asia (+30.7% yoy for the 3 months to September) and the US (+20.0%). Exports to the EU rose by a more modest 3.9% yoy. However, exports to the UK fell 21% yoy.

The value of imports was unchanged from the earlier estimate published on 26 October. Import values in September were 18.8% higher than a year earlier, while imports for the three months to September were 16.9% higher. Given our estimate of a 20% increase in import prices over the same period, the implication is that import volumes are flat at best, in keeping with subdued domestic demand.

Commentary As discussed in our recent Economic Forecasts, we believe that the conditions are now in place for a significant improvement in the current account deficit, driven largely by an improving trade balance. The forecast improvement reflects our expectation of strong growth in export volumes (driven by robust world growth, a competitive exchange rate and continued growth in commodity exports); subdued growth in import volumes (due to weak domestic demand and import substitution); and our assumption of a recovery in the terms of trade (driven by our assumption of a significant fall in oil prices in the second half of 2001). We expect the current account deficit to fall to around 7.0% of GDP in Q3 2000, from 7.2% of GDP in Q2. A more substantial fall to 6.1% of GDP is expected in Q4 2000, at which time the impact of on the trade balance of unusually strong imports in Q4 1999 (due to the importation of a frigate) will drop out of the annual calculation. Thereafter, we expect the current account deficit to decline to below 3% of GDP over the next two years.

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