Smaller than expected trade deficit in December

In a welcome reversal of recent trends, New Zealand posted a much smaller than expected trade deficit for December, Statistics New Zealand said today.

The monthly deficit came in at $292 million instead of the $800 million shortfall forecast by economists.

December exports came in at $2.65 billion against the forecast of $2.5 billion while imports were $2.94 billion against the $3.28 billion forecast.

Exports in November were $2.58b and in December 2004 were $2.54b. Imports in November 2005 were $3.82b and in December 2004 were $3.07b.

The deficit for calendar 2005 was $6.44b, slightly better than the $6.90b forecast but significantly worse than the $4.2b shortfall in 2004.

The December deficit is the equivalent of 11.0 per cent of exports. The average December deficit over the past decade is a $279m.

SNZ said today the increase in exports in December was driven by higher values for milk powder, butter and cheese, up 23.3 per cent.

In the December 2005 quarter, seasonally adjusted exports were valued at $7.85b, up 4.9 per cent on the September quarter. The increase was driven by milk powder, butter and cheese; kiwifruit; and casein and caseinates.

Imports in the quarter rose 1.8 per cent to $9.55b, driven by transport equipment, and petrol and aviation fuel.

ANZ National Bank economist Cameron Bagrie said the fall in imports across the board was consistent with softening domestic demand.

"In the overall scheme of things, while it is welcome relief, it is a drop in the bucket," he told Reuters.

"Turning around this ballooning trade deficit is going to take some major work. I'm still expecting a current account deficit figure for the December quarter to print well in excess of 9 per cent of GDP."

Goldman Sachs JBWere economist Shamubeel Eaqub said it was pleasing to see dairy exports making a comeback.

"This means that net exports will be a key factor in Q4 gross domestic product and will have some surprise to the upside for forecasts.

"For the current account it means that it will probably go from 8.5 per cent of GDP to 8.75 per cent in the fourth quarter."

BNZ economist Stephen Toplis said it was remarkable how resilient exports had been in the face of the strong currency.

"Dairy exports in particular look like picking up from seasonal lows. Basically, the figures suggest net exports will make a positive contribution to economic growth."

- NZPA, REUTERS