Trade balance - January 2002

Data Flash (New Zealand)

Result: A trade deficit of $245m was recorded compared with expectations of a $80m surplus.

Implication for markets: The trade balance is now on a deteriorating trend, taking some of the gloss off the positive medium-term NZD story. Strong imports confirm the economy's resilience and that markets are correct to anticipate that the RBNZ will soon begin to withdraw monetary stimulus, beginning with a 25bps tightening in May.

Commentary

The January trade balance was much worse than expected. As expected, export growth remained subdued. However, imports rebounded very strongly during the month - a sign of economic strength - with intermediate and consumption goods leading the way.

With the export sector continuing to be affected by still sluggish global demand and weakened prices, and imports being driven higher by robust domestic demand, today's data confirms that the trade balance is now on a deteriorating trend. While the annual current account deficit is likely to have declined to below 3% of GDP in the 2001 calendar year (data due 27 March), a deficit of well over 4% of GDP now appears likely during the current calendar year (more in line with the historic average over the last 20 years).

The prospects for renewed improvement at a later date will depend on the strength of the global recovery and the path of the NZD. We expect further adverse terms and trade influences to cause the deficit to gradually rise again to 3.8% over the course of this year.

Key Points

A provisional merchandise trade deficit of $245m was recorded in January, compared with a surplus of $94m in January 2001. The average deficit for January over the past 10 years is $47m. The annual trade surplus was $651m, compared with a deficit of $1,443m a year earlier.

The result was much worse than the median market expectation of an $80m surplus. Export values were very close to expectations but import values far outstripped expectations.

The value of exports for the three months to January was 2.4% lower than a year earlier, with falling prices now more than offsetting modest growth in volumes. The estimated level of imports for the three months to January was 0.2% higher than a year earlier. Strengthening import volumes has been offset by lower prices, especially for oil.

Imports for the month of January far exceeded market expectations, due probably to higher than expected imports of oil and other intermediate goods and a strong due rebound in imports of consumer goods. Imports of motor vehicles remain elevated as dealers stocking up on cars prior to a scheduled tightening of import standards.

Darren Gibbs, Senior Economist, New Zealand (64) 9 351 1376

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