Import drop shrinks trade deficit to four-year low

New Zealand's annual trade deficit narrowed last month to the smallest since 2005 as the nation's deepest recession in more than three decades led to a record drop in imports.

The shortfall shrank to $4.11 billion in the 12 months ended April 30 from $4.68 billion in the year through March, Statistics NZ said yesterday.

That is less than the $4.15 billion median estimate in a Bloomberg News survey of seven economists.

Demand for imports has tumbled as companies cut investment while the highest unemployment in six years prompts the nation's consumers to restrain spending on televisions, cars and holidays. As well as a slowdown in the domestic economy, New Zealand is grappling with a drop in export earnings as the global recession reduces sales of commodities such as milk products and aluminum.

"The trade turnaround is not based on good economic news, insteadit's because imports have collapseddue to a stone-dead economy," said Annette Beacher, a senior economistwith TD Securities in Sydney.

Still, she added that declines in imports would reduce the nation's current-account deficit, which could help New Zealand "stave off an S&P ratings downgrade".

Standard & Poor's said in January New Zealand's AA+ foreign currency credit ranking might be cut if expanding current-account shortfalls and overseas debt curb investment and growth.

In April, there was a trade surplus of $276 million compared with a $293 million deficit a year earlier. Economists expected a $250 million surplus.

"There is further scope for imports to fall," said Khoon Goh, senior economist at ANZ National Bank in Wellington.

- BLOOMBERG