Data Flash (New Zealand)
NZ March trade balance weaker than expected
Key Points
Statistics NZ reported a provisional merchandise trade surplus of $74m for the month of March compared with a surplus
of $35m in March 2000. The average surplus for March over the past 10 years is $200m. The median market expectation had
been for a surplus of around $196m. The annual deficit declined slightly to $1,081m compared with a deficit of $1,120m
in February.
Export values were very close to expectations. Thus import values, which have been very volatile over the first three
months of this year, were once again the key source of surprise. Following an extremely weak February, import levels
bounced back to some extent across most categories. In particular, we draw attention to the impact of a strong surge in
imports of crude oil and motor vehicles (the latter the second strongest month on record) and the import of a plane
worth a little over $90m. Imports of capital plant and machinery recorded a modest bounce-back in line with
expectations, but over Q1 as a whole was 16.6% lower than in the previous quarter.
The value of exports for the three months to March was 18.4% higher than a year earlier. With export prices now
estimated to have increased by around 16% over the same period, today's outcome suggests that export volumes expanded at
an annual rate of just 2%. A breakdown of the export data by category will be made available with the final trade
release on 15 May, but the Statistics New Zealand's estimate of the price/volume split will not be published until 11
June.
The estimated level of imports for the three months to March was 11.6% higher than a year earlier. Excluding `lumpy'
imports of capital transport and military equipment, `core' imports for the 3 months to March were 10.6% higher than a
year earlier. We now estimate that import prices rose by around 9% over the same period, implying that core import
volumes expanded by a little over 1%.
Commentary
As we suspected, a large part of the extreme weakness seen in the February trade figures seems to have reflected the
volatility often seen in monthly trade data, rather than indicating renewed weakening in domestic demand. The trend in
imports of capital equipment remains a little disappointing. However, the latest figures need to be seen in the context
of very strong growth in 2000 (national accounts data suggests that the volume of plant and machinery investment
increased 27% between Q4 1999 and Q4 2000). Export values, while in line with expectations, remain relatively
disappointing, notwithstanding the current economic weakness evident in many of New Zealand's trading partners.
Nonetheless, despite the worse than expected trade balance, the improving trend in the annual current account deficit
remains intact. We expect that annual current account balance to decline to around 4.9% of GDP in Q1 2001 and to around
4% of GDP during the second half of 2001. Thereafter, the prospects for further improvement will depend on a number of
factors. These factors include the shape of the recovery in the economies of New Zealand's major trading partners
(especially the US and Australia), the extent to which New Zealand producers can gain market share (assisted by the weak
NZD) and the degree to which drought conditions intensify over coming months (with consequent risks for agricultural
production later in the year).
On a seasonally adjusted basis, import values fell 7.8% qoq in Q1 whereas export values fell 2.6% qoq. We forecast only
a small decline in the terms of trade during Q1 (export prices are estimated to have fallen by around 7% qoq while
import prices have likely to have by 6% qoq, both largely reflecting the recovery in the NZD during Q1). Even after
allowing for adjustment to National Accounts concepts, we expect net exports to make a solid positive contribution to
GDP growth in Q1.
We have revised up our preliminary estimate for GDP growth in Q1 to 0.8% qoq in light of evidence of stronger than
expected agriculture sector output in March (previously we saw this sector making a negative contribution to growth in
Q1).
Darren Gibbs, Senior Economist, New Zealand
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