Consumption leads to record $1.7b deficit

By Brian Fallow

WELLINGTON - The lopsided, consumption-led nature of the economic recovery is continuing to wreak havoc on New Zealand's external accounts, with unexpectedly bad June trade figures pulling the annual deficit to a record $1.7 billion.

The provisional figures (the export side is an estimate) show a deficit of $188 million last month, where the market expected a figure close to June 1998's surplus of $29 million. It is the first June deficit for 13 years.

About half the deficit can be attributed to a one-off item, the import of an oil tanker. But imports of consumer goods and, especially, motor vehicles continued to climb. Over the past year motor vehicle imports were 43 per cent higher than the year before. Statistics New Zealand attributed the surge to the removal of tariffs on imported cars in last year's Budget, the consequent closure of our car assembly industry, and the prevailing low interest rates.

Taking a rolling three-month average, to smooth out the effects of lumpy items like the oil tanker, imports are still gathering pace. For the three months to June they were 9.9 per cent ahead of the same period last year, compared with a 6.8 per cent increase in the three months to May.

Possibly reflecting concerns about the Y2K bug, imports of computers were 13 per cent higher in the June quarter than in the same period last year.

Imports of capital plant generally were 5.3 per cent higher, which is consistent with other indicators - including March quarter GDP - that business investment is beginning to join consumption as a driver of growth.

Exports, however, continue to languish. Although the official export figure will not be released until August 9, Statistics' estimate, generally accurate, suggests June exports at $1.86 billion will be a scant 0.3 per cent above June 1998. The outlook for exports is seen as improving, however. The latest quarterly survey of business opinion by the NZ Institute of Economic Research reported expectations for manufacturing exports at their highest level since 1992.

"While we expect that to be reflected in stronger September quarter figures, it has to be remembered that the manufacturing sector only accounts for around 20 per cent of overall merchandise exports," Deutsche Bank chief economist Ulf Schoefisch said.

"However, with stronger volume and price trends emerging in some commodity markets, forestry in particular, we forecast a broadening of the export recovery during the second half of this year."