Dairy boom helps trim trade deficit

Fonterra raised its forecast payment to New Zealand milk suppliers by 4.5 per cent last month. Photo / Bay of Plenty Times

New Zealand's trade deficit narrowed in November as demand from China increased prices of dairy and lumber exports.

The shortfall was $186 million from a revised $224 million in October, Statistics New Zealand said yesterday.

The median estimate in a Bloomberg News survey of five economists was for a $150 million deficit.

Rising exports, which make up 30 per cent of the economy, add to signs New Zealand may avoid a recession after gross domestic product fell 0.2 per cent in the third quarter.

Exports rose 19 per cent from November to $3.65 billion, the report showed. Imports gained 15 per cent from a year earlier to $3.84 billion.

Commodity prices rose 4.5 per cent in November from October, according to an index calculated by ANZ National Bank. From a year earlier, the index increased 24 per cent.

The nation's commodity exports are attracting record prices in world markets, amid increased demand from China and other Asian countries.

"The strength of emerging Asian economies is a large factor behind the strength in export earnings," said Jane Turner, economist at ASB Bank in Auckland. "The strength in commodity prices, particularly dairy, has been a positive development for agricultural exporters over the past year."

But Turner cautioned that higher prices for other commodities such as sugar and wheat would soon begin to flow through to imports.

Higher prices for feed would also limit the ability of farmers to cushion the impact of drought and might reduce future export volumes.

China's economy expanded by about 10 per cent last year, according to an estimate by Vice Premier Li Keqiang reported this month.

Dairy exports, which make up a fifth of overseas sales, rose 32 per cent from November to $997 million.

Last month, Fonterra Co-operative Group, the world's largest dairy exporter, raised its forecast payment to New Zealand milk suppliers by 4.5 per cent, citing higher international prices.

Lumber exports rose 33 per cent, said yesterday's report. Sales of meat, wine and aluminum also increased.

Exports of all goods to China, the second-largest market for New Zealand after Australia, increased 46 per cent to $421 million, the report showed.

Imports were led higher by vehicles and machinery, in particular aircraft engines and wind turbines, the statistics agency said. Crude oil purchases fell as prices dropped 3 per cent.

Despite rising commodity prices the seasonally adjusted value of imports over the three months to November was broadly unchanged over the previous three months, ANZ economist Mark Smith noted.

This partly reflected the rise of the kiwi against the US dollar, but was also in line with the Reserve Bank's "downbeat" view. "It illustrates domestic demand remains subdued, with intermediate [down 6 per cent s.a. in the three months to November] and consumption goods [down 1.5 per cent] both easing."

New Zealand posted a trade surplus of $1.35 billion in the 12 months ended November 30. Economists expected a 12-month surplus of $1.31 billion.

- Bloomberg, staff reporter