Surge in imports hurting trade balance

By JIM EAGLES business editor

The deteriorating trend in New Zealand's trade balance - and, as a result, in the current account - has been confirmed by a much worse than expected trade figure for April.

Statistics New Zealand yesterday reported a trade surplus for the month of just $19 million, well below the market expectation of $250 million to $300 million and markedly down on the $516 million surplus reported for March.

But the March figure was considerably higher than had been expected and, taken together, the two months fit fairly tidily into the pattern of slow deterioration.

The official trend figures suggest that imports are growing by around 0.9 per cent a month, outpacing exports which are increasing by 0.6 per cent, and that this has been the pattern since the middle of last year.

That trend is now widely expected to turn the recent pattern of trade surpluses into consistent deficits before much longer.

Deutsche Bank senior economist Darren Gibbs said he now thought the trade balance would be negative by mid-year.

As a result, he is picking the current account deficit to grow from the 3.2 per cent of GDP recorded last year to 4.5 per cent of GDP for this year.

Robin Clements, of UBS Warburg, expects the deterioration to be even worse and to reach close to 6 per cent of GDP for this year.

Longer term, the picture is not clear and is likely to depend on what happens to the New Zealand dollar and the global economy.

Gibbs said he continued to think the bulk of the deterioration in New Zealand's trading position would have occurred by the third quarter of the year "with the deficit remaining broadly stable over the subsequent 18 months".

"However, we have one eye on the New Zealand dollar, which has already reached our three-month target of 47USc."

The unexpectedly small trade surplus for last month was caused by a combination of disappointing exports and booming imports.

Seasonally adjusted, exports fell by 1 per cent during last month. But imports, after declining in the two previous months, rose by nearly 18 per cent.

The surge in imports during last month was mostly caused by increases in purchases of crude oil, heavy vehicles, machinery and cars.

Economists have been mildly encouraged by the increase in spending on capital imports which, according to BNZ treasury economist Craig Ebert, has been growing at the rate of 12 per cent.

"This," he said, "is consistent with our view that investment will be reasonably positive this year."

The trade data is seen as confirming the general expectation that domestic demand will have to be the key driver of growth this year.

So far this year exports have been also doing better than many had expected. "Merchandise export receipts are actually holding up remarkably well considering the slip in world prices and, particularly, the surging currency," Ebert said.