NZ Overseas Merchandise Trade (Imports)

Data Flash (New Zealand)

NZ Overseas Merchandise Trade (Imports) - October 2000

Key Points

Statistics NZ reported a provisional trade deficit of $225m for the month of October compared with a deficit of $430m in October 1999. Around $140m of the annual improvement reflects lower imports of capital transport equipment during the month (including aircraft).

Due to seasonal factors, large deficits are common at this time of the year - the average deficit for October over the past 10 years is $228m.

The market expectation had been for a deficit of $255m. Although the trade balance printed close to the median market expectation, both export and import values printed stronger than market expectations.

The annual deficit fell slightly to $2,905m in October from $3,110m in September.

The estimated level of exports in October was 32.5% higher than a year earlier, while exports for the three months to October were 27.1% higher than a year earlier.

We estimate that export prices in Q4 2000 will be some 24% higher than a year earlier. This suggests growth in export volumes of around 7-8% yoy in Q4 - consistent with our expectations. Detailed export data will be made available with the final trade release on 11 December.

The estimated level of imports in October was 18.6% higher than a year earlier, while imports for the three months to October were 18.7% higher than a year earlier.

We estimate that import prices in Q4 2000 will be some 25% higher than a year earlier. Excluding imports of capital transport equipment (strongly influence by aircraft imports), imports in October were 26.8% ahead of the same month last year. This implies that core import volumes are broadly flat, in keeping with subdued consumer demand and a sharp decline in building activity.

Commentary

The latest outcome was broadly in line with our own forecast of a trade deficit of $250m. Therefore, our view of the outlook for the trade balance and the current account deficit has not been changed by today's release.

As discussed in our October Economic Forecasts, we believe that the conditions are now in place for a significant improvement in the current account deficit, driven largely by an improving trade balance. The forecast improvement reflects our expectation of continued strong growth in export volumes (driven by relatively robust world growth, a competitive exchange rate and continued growth in commodity exports); subdued growth in import volumes (due to weak domestic demand and import substitution); and our assumption of a recovery in the terms of trade (driven by our assumption of a significant fall in oil prices in the second half of 2001).

On this basis, we expect the current account deficit to decline to below 3% of GDP by Q1 2003.

Darren Gibbs, Senior Economist,

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