March trade surplus flatters to deceive

Deutsche Bank chief economist Darren Gibbs.

New Zealand has reported its first trade surplus in nearly two years but the current account is set to get worse.

Statistics New Zealand said yesterday the trade balance for March was a $59 million surplus - the first time exports have outweighed imports since May 2004.

Economists had been expecting a deficit of around $250 million.

Deutsche Bank chief economist Darren Gibbs said a surplus was usual in a March month, because dairy output was peaking and exports were tailing off as winter approached.

"A surplus at this time of year could hardly be said to be a positive sign that we're on our way back to a surplus for a full year," he said. "We're a long, long way away from that."

Imports of $3.12 billion were up 4.6 per cent from March last year.

But exports rose more strongly, up 13.8 per cent to $3.17 billion. Dairy exports drove the gain, rising nearly 32 per cent to $540 million.

Despite the better performance, ANZ economists said: "Overall export performance remains subdued and it will take time for a lower currency to filter through to exporter activity."

This should mean that the current account deficit - the country's debt to the rest of the world - will continue to worsen. ANZ expects the current account deficit to worsen to 9 per cent of GDP in this quarter, up from 8.9 per cent of GDP in the December quarter last year. "Imports will continue to weigh on the current account for some time," ANZ said. "It is difficult to foresee a material turnaround in the trade position unless we see a collapse in import demand."

Gibbs also expected the current account deficit to worsen, hitting 9 per cent this quarter and then peaking at 9.5 per cent to 10 per cent at the end of the year.

Gibbs said some of the better-than-expected March result had to do with the different ways Statistics NZ converted import and export prices to New Zealand dollars. This was likely to be reversed in April.