Record deficit not surprising say economists

Economists said the record $1.1 billion trade deficit in August was concerning, although not a complete surprise.

The result pushed the annual trade deficit out to $5.82 billion from $3.8 billion a year earlier.

"We've been bearish on the external accounts for some time and this is just further bad news," says Craig Ebert, economist with the Bank of New Zealand.

"There's a huge imbalance developing between exports and imports that we've never experienced as a country before, and everyone should be quite concerned about how we're going to get out of that situation."

The figures point to the need for a major correction in the New Zealand dollar which fell on the news -- dropping quickly to US68.49c from US68.65c shortly before the announcement.

"The external numbers we're seeing suggest to us that the New Zealand dollar is well overdue for a depreciation if not a correction, it's getting quite extreme," Goldman Sachs JB Were economist Bernard Doyle said.

Soaring oil prices and a continued spend-up on imported consumer goods were behind the latest deficit.

The cost of imports rose 12.7 per cent to $3.47 billion in August, while export revenue fell 0.2 per cent to $2.36 billion.

Fuel products, particularly crude oil imports, played a big role, rising 32 per cent in the year to August. The August fuel bill was 29.2 higher than the same month a year earlier at $353 million.

Ships and boats and mechanical machinery and equipment were also big contributors to the higher import values.

Mr Ebert said exporters were clearly struggling against the strong kiwi dollar -- which has been boosted in the past year by New Zealand's relatively high official interest rate.

"Broadly speaking it's a story of exports struggling and imports still quite strong.

"It's an unfortunate imbalance and dynamic, and it's one that argues for a lower dollar and higher interest rate, and the current account deficit will deteriorate going forward."

The main contributors to the reduced exports value were fruit -- particularly kiwifruit -- and meat, particularly beef cuts.

Offsetting those falls were higher values for milk powder, butter and cheese.

Today's data compares with an average August trade deficit in the past 10 years of just $341 million.

It is the latest in a string of figures showing New Zealand is deeply in the red in its dealings with the outside world.

Last week SNZ figures showed the country's current account deficit -- which takes into account financial transactions as well as the flow of consumable goods -- swelled to $11.89 billion in the year to June, the worst deficit since the 1980s and a massive 8 per cent of GDP.

- NZPA