Deutsche Bank Research: NZ Merchandise Trade - Nov

Data Flash (New Zealand) NZ Merchandise Trade - November 1999

Key Points

Provisional data for November recorded a $795m merchandise trade deficit, more than twice the average market expectation. The annual deficit widened to 2.6% of GDP, from 2.2% over the year to October.

The combination of strong import growth and a somewhat disappointing export performance was behind the deterioration. Imports continue to be driven by buoyant domestic demand, the sharply higher cost of oil, as well as Air New Zealand's fleet replacement programme. November included $328m of aircraft imports (supposedly a set of four 737s), lifting the aircraft total for the last three months to $800m.

As far as exports are concerned, prices have remained weak, while volume growth is strengthening - consistent with the September quarter GDP numbers.

With the importation of the $550m naval frigate to be recorded in December, we expect the current account deficit for the year to December to rise to a peak of 8%, with a gradual reduction over subsequent quarters. Our forecast is for a further strengthening in export growth in 2000 and a broadly based commodity price recovery. That will drive a gradual recovery of the trade balance.

Notwithstanding that expected trend reversal, the level of the current account will remain high and provide a negative backdrop to the NZD performance over the next year. As a result, we expect only a relatively modest recovery to 0.5600 by late 2000.

Ulf Schoefisch, Chief Economist, New Zealand

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