Import strength surprise for economists

By BRIAN FALLOW

An unexpected merchandise trade deficit in January suggests the strong recovery in New Zealand's trade balance over the past two years is over.

Statistics New Zealand's estimate of a $245 million deficit in January confounded market economists, whose median pick had been an $80 million surplus.

The surprise was on the imports side. Imports at $2.54 billion were 14.6 per cent up on January last year, whereas exports at $2.3 billion were 0.6 per cent lower.

Imports in recent months have been boosted by dealers stocking up on cars ahead of tougher safety standards. Vehicle imports in the three months ended January at $700 million were 32 per cent higher than in the same period a year earlier.

UBS Warburg chief economist Robin Clements said the strength of imports overall suggested firms were restocking after surprisingly robust retail sales in the last quarter of 2001 and expected continued good sales.

The higher level of imports of capital goods - up 10 per cent in the January quarter on year-earlier levels - boded well for capital expenditure by businesses, he said. Surveyed business investment intentions have been rising for the past four months.

Exports for the three months to January were 2.4 per cent lower than a year earlier. Deutsche Bank chief economist Ulf Schoefisch said falling export prices were now more than offsetting modest growth in volumes.

"With the export sector continuing to be affected by still sluggish global demand and weakened prices, today's data confirms that the trade balance is now on a deteriorating trend," he said.

The annual surplus shrank to $651 million from $991 million a month ago.

"While the annual current account deficit is likely to have declined below 3 per cent of GDP over 2001, a deficit of well over 4 per cent of GDP now appears likely this year."