NZ recorded smallest trade deficit since Jan 2001

New Zealand recorded smallest trade deficit since January 2001

• Smallest trade deficit since January 2001

• On-year-ago import growth fell for first time since August 2007

• Net exports will remain a drag on GDP growth

New Zealand’s trade deficit narrowed to NZ$187 million in January (J.P.Morgan –NZ$650 million, consensus –NZ$450 million), marking the smallest deficit since January 2001. The deficit narrowed from -NZ$334 million in December (previously -NZ$347 million). The annual trade balance was a deficit of NZ$5.75 billion, compared to –NZ$5.62 billion in November.

Imports in January were down 0.9%oya, marking the first fall since August 2007. This fall was mainly owing to a 48% decrease (NZ$105 million) in imports of motor vehicles. The largest increase was a NZ$91 million rise in imports of petroleum and products, led by an increase in crude oil quantities, according to Statistics New Zealand.

Exports grew 3.0%oya in January, slowing mildly from 4.4% in December, but marking the lowest monthly increase since August 2007. The main drivers of exports were a massive 107%oya increase (NZ$52 million) in the value of preparations of cereals, flour and starch, and a 53% rise (NZ$50 million) in casein and caseinates. FX movements had a minimal impact on exporters’ competitiveness, with the NZD falling just 0.5% in January in trade-weighted terms.

The worsening outlook for the global economy means there are tough times ahead for Kiwi exporters, even though the weaker NZD will soften the blow. The marked deterioration in conditions in the country’s dominant trading partners is the largest headwind facing the nation’s exporters. Over the past month, J.P.Morgan has downgraded growth forecasts for Australia, the US, Japan, and China – New Zealand’s four largest export destinations – meaning that net exports will remain a significant drag on growth in 2009.

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