Export slump set to widen New Zealand's trade gap

The trade gap looks set to widen further after export volumes tumbled in the September quarter.

Export volumes shrank 8.7 per cent, ending a run of four consecutive quarters of growth, says Statistics New Zealand.

Dairy products were the main contributor to the fall, though all major categories recorded declines.

Tight management of inventories reduced dairy stocks at the end of the 2003-2004 season compared with a year earlier, meaning lower volumes were available for export in the September quarter, Statistics NZ said.

Import volumes also fell, but not as much - 2.4 per cent.

In what may herald a slowdown in household spending, imports of consumer goods and cars were lower, by 1.2 and 2.2 per cent respectively.

But imports of non-transport capital goods remained strong, running at around twice the level of four years ago.

That suggests businesses are investing more to relieve capacity constraints and boost productivity.

Against September last year, import volumes are up 12.7 per cent but exports are lower by 0.1 per cent.

Deutsche Bank chief economist Ulf Schoefisch said the gap was alarming. The only reason the trade balance in dollar terms had not deteriorated more dramatically was that the terms of trade - the volume of imports that can be funded by a fixed volume of exports - improved by 7.4 per cent over that one-year period.

The terms of trade have strengthened by nearly 10 per cent over the past two years (close to three-year highs), boosting national income.

But in the September quarter they fell 0.2 per cent.

Even though world prices for New Zealand exports continued to increase, they were outstripped by a higher exchange rate, so that in New Zealand dollar terms export prices fell 1.1 per cent.