Trade gap grows as exports ease

The trade gap widened last month as exports struggled under the weight of an overvalued dollar while the buoyant domestic economy continued to suck in imported goods.

Statistics New Zealand reported exports at $2.56 billion, 5.1 per cent below June last year, while imports at $3.8 billion were only 0.3 per cent lower than a year earlier.

The monthly deficit of $522 million was worse than the markets had expected and the worst so far this year. It pushed the annual deficit to $5.18 billion.

The trade balance has been deteriorating since early 2002.

In the June quarter, exports were down 1.1 per cent on March, while imports climbed 2.4 per cent.

Imports of consumer goods were up 3.7 per cent but imports of plant and machinery fell 4.7 per cent.

"That is surprising considering continued tight production capacity," said Deutsche Bank chief economist Ulf Schoefisch.

"However, business surveys indicated that confidence, a key determinant of of investment decisions, weakened considerably during the June quarter."

Deutsche Bank estimates that export volumes in the June quarter were about 3 per cent lower than in the same period last year. Lower production of some commodities was part of the explanation, but the underlying trend also reflected the pressure of the strong dollar on the export sector.

The kiwi has fallen against the United States dollar this month but that has yet to show up in the trade data.

ANZ National Bank economists forecast the current account deficit to hit 7.4 per cent of gross domestic product for the year to June.

They expect the deficit, which has blown out from 4 per cent of GDP in early 2003, to remain about 7 per cent for some time, because of the time it takes for a high currency and weak exports to have an impact on the appetite for imports.

Deficits of that size add to the downward pressure on the exchange rate.

While the dollar has eased from peaks of 74USc in March to about 68USc now, the ANZ economists said it remained overvalued.