Trade surpluses 'close to peaking'

The value of imports such as crude oil was exceeded by the value of exports last month to the tune of $230 million. Photo / Supplied

High export commodity prices kept the trade balance in the black last month but economists warn it may be close to as good as it gets.

Exports exceeded imports by $230 million or 6 per cent, making a surplus for the year of just over $1 billion - in line with the year ended May but down from an annual surplus of $1.2 billion in April.

"Given the strong New Zealand dollar, an apparent topping out in the prices for some commodity exports and an eventual stronger pick-up in import demand, we believe the annual trade surplus is close to peaking," Goldman Sachs economist Philip Borkin said.

Exports of both dairy products and meat were 11 per cent higher last month than in June last year, offset by a 9 per cent rise in oil imports.

The importance of rising commodity prices is apparent in the figures for the June quarter as a whole.

Export values for dairy products rose 7 per cent, seasonally adjusted, from the March quarter, despite a 4 per cent decline in volumes.

Most of the 12 per cent increase in meat export receipts was price related; volumes rose 5 per cent on the March quarter. And the value of forest product exports fell just 1 per cent despite a 10 per cent drop in volumes.

On the import side a 2.5 per cent fall in plant and machinery imports in the June quarter might also be largely a price effect rather than a sign of reduced investment demand, said ASB economist Jane Turner, as the kiwi was on average almost 6 per cent higher against the US dollar than in the March quarter.

On the trade-weighed index (TWI) it averaged 69 over the June quarter but it is now 7 per cent higher than that.

ANZ chief economist Cameron Bagrie, said as a rough rule of thumb each 1 per cent rise in the TWI lowered export volumes by 0.3 per cent after 18 months and took about 0.1 per cent off gross domestic product.

"The impact on export incomes will be larger still and will occur more quickly, with a substantial economy-wide impact once the flow-on effects are taken into account. Remember, the past two months have seen soft commodity prices start to retreat as well."

Turner said the recent lift in the exchange rate with the Australian dollar would take the edge off the competitiveness of New Zealand manufacturers in the Australian market.

"Also concerning are anecdotes of slowing demand in China, particularly for raw commodities such as forestry.

"New Zealand's economic recovery has been supported by stronger export incomes over the first half of 2011.

"However, there are concerns that support for export incomes may wane over the second half of the year, as commodity prices moderate from elevated levels and global growth goes through a soft patch."

Infometrics economist Matt Nolan said the June quarter trade surplus was the second largest since September 2001, and the largest if April's importation of aircraft is excluded.

"High export prices will keep the trade balance in surplus for the remainder of 2011 ... [and it] is unlikely to fall back into deficit until 2012," Nolan said.