Surprise surplus points to current account turnaround

New Zealand posted a surprise $19 million trade surplus in April, Statistics New Zealand (SNZ) said today, confounding local economists who had predicted a $180 million deficit.

That took the annual trade deficit to $6.9 billion, bettering economists' expectations of a $7.08 billion deficit .

Today's surplus provided some comfort for Reserve Bank Governor Alan Bollard, pointing to an export pickup and slowing domestic demand, which should help level out the glaring current account deficit -- which swelled to almost 9 per cent of GDP in 2005.

"It suggests net exports will soon start contributing to growth, having been a drag for the past 2-1/2 years," Citigroup senior economist, Annette Beacher, told Reuters.

SNZ said trade surpluses were not uncommon in April, despite a three-year hiatus. Today's surplus was close to the April average for the past decade.

Dairy products were behind the monthly surplus, with a $209m rise in the value of milk powder, butter and cheese. They accounted for 19.6 per cent of all exports in April.

The cost of imports rose 2.3 per cent to $3.01 billion in April, while export revenue rose 8 per cent to $3.03 billion.

Fuel products, particularly crude oil imports, continued to weigh on the trade balance, rising 30 per cent in the year to April.

The merchandise trade data measures the difference between what New Zealand earns for its exports, and what it pays for its imports.

It forms an important part of the current account, which measures all of the country's dealings -- including financial -- with the outside world.

The New Zealand dollar, which rallied above US63c overnight as investment funds liquidated short positions, continued to plow higher on the trade news.

At 11.15am it was buying US63.57c from its US63.24c local open.

"New Zealand has the double benefit of a soft currency and rising terms of trade, which looks set to restrain the current account deficit around 9 per cent of GDP," Ms Beacher said.

"That's still not good but we had thought it would hit 10 per cent or more. Altogether, the kiwi dollar should love this and we have a target of US66c in the coming months."

- NZPA