Trade deficit much worse than expectations

Soaring oil prices sent New Zealand's trade deficit to $745 million in July, far worse that the $425m median forecast by economists.

Statistics New Zealand (SNZ) said today the monthly shortfall pushed the July year deficit up to $6.735 billion against the consensus forecast of $6.433b.

All July months over the past decade have recorded a deficit. However, the trade balance for this year was the worst, boosted by a one-off import worth $244m.

Imports jumped $707m to a record high for a July month of $3.76b. Most import categories rose in July and for the third consecutive month the main contributor to the increase was petroleum and products (mostly crude and diesel in July).

For the fifth consecutive month, the largest offset to the increase in imports was vehicles, parts and accessories. The largest fall was for petrol-driven cars with an engine capacity over 3000cc.

Exports increased $587m in July to $3.013b. The largest contributors to the increase were milk powder, butter and cheese, which was boosted by increases in exports of milk solids, milk fat, and whole milk powder.

The value of wine exported was nearly 60 per cent higher than in July 2005, most of which went to the United Kingdom and Australia.

Since 1988, those countries have received more than half of total wine exports in all but seven months.

Imports for the year to July totalled $39.75b against $35.99b in the July 2005 year. Exports totalled $33.015b against $30.579b a year earlier.

Despite the dire headline result, Goldman Sachs JBWere economist Shamubeel Eaqub said the underlying trend appeared to be an improvement in the trade balance.

"The export sector still looks reasonably strong, but import growth was slowing in terms of overall rate and given the impact of the currency I would suspect much of the easing is in volumes rather than prices.

"This is consistent with the domestic economy cooling and the RBNZ (Reserve Bank) will be encouraged to see that."

However, he said the bank's focus would remain on inflation pressures and so the Official Cash Rate would stay at 7.25 per cent for some time.

The New Zealand dollar fell around a fifth of a cent to US63.70c after the release.

- NZPA