Sharp drop in imports creates bumper surplus

New Zealand posted its largest monthly trade surplus for 16 years last month as exports held up, while feeble demand and a weaker exchange rate pulled the import bill down sharply on a year ago.

Exports at $4 billion exceeded imports by $858 million. The surplus equated to 21.7 per cent of exports, the highest that ratio has been since June 1993.

Exports were 5.8 per cent higher than in May last year and imports 20.7 per cent lower. In the interim, the exchange rate had fallen 16 per cent on a trade-weighted basis, offsetting lower export prices on the one hand and making imports more expensive on the other.

It reduced the annual deficit to $3 billion from $4 billion in April.

Statistics New Zealand said the trend for exports had remained relatively flat over the past eight months, rising at an average 0.2 per cent a month, while the trend for imports has been downhill since August 2008.

Dairy exports last month were 19 per cent higher than a year earlier, underpinned by a doubling in the volumes of milkpowder shipments from drought-affected levels last year. Exports of forest products and fruit were also higher.

Imports were $809 million lower than a year ago, of which $86 million reflected an aircraft imported in May 2008 and $106 million lower oil imports, shipments of which are irregular.

But the decline was broad-based: 29 of the top 40 import groups were down.

Consumer goods overall were flat (down just 0.2 per cent) but car imports were down 52 per cent on a year ago.

Plant and machinery imports were up 5 per cent. "That is still consistent with a sizeable decline in underlying volumes, given the impact of a weaker exchange rate on the price of imported capital goods," said Deutsche Bank chief economist Darren Gibbs.

For the three months ended May, imports of plant and machinery were down 23 per cent on the same period last year. Business sentiment surveys indicate weak investment intentions.

After allowing for price movements, Gibbs estimated overall import volumes in the June quarter were running about 24 per cent below year-earlier levels, after being down 18 per cent in the March quarter.

Exports volumes were running about 1 per cent below year-earlier levels compared with a 4.3 per cent decline in the March quarter.

"The report points to a substantial decline in the current account deficit in the June quarter to around 7 per cent of GDP from 8.5 per cent in the March quarter," he said.

It could fall below 5 per cent next year if domestic demand remained subdued.

ASB economist Jane Turner is wary, however, about the sustainability of trade surpluses. While import volumes had fallen sharply over the past few months they were likely to stabilise in the second half of the year, with the bottoming out of domestic activity, she said.

EXPORTS HOLD

May 2009:
* Exports of $4b up 5.8 per cent on a year earlier.
* Imports of $3.14b down 20.7 per cent.
* Surplus of $858m equates to 21.7 per cent of exports, the highest ration since 1993.