Data Flash (New Zealand)
Key Points
A provisional merchandise trade surplus of $652m was recorded for the month of May compared with a surplus of $173m in
May 2000. The average surplus for May over the past 10 years is $327m. The surplus easily exceeded our expectation of
$350m and the median market expectation of $318m.
The annual deficit declined to $166m compared with a deficit of $645m in April. The annual balance appears likely to
move into surplus when the June data are published this time next month. This will be the first annual trade surplus
(merchandise trade basis) since April 1995.
The much better than expected surplus was due solely to stronger than expected export values. The value of exports for
the three months to May was 20.2% higher than a year earlier. We think that favourable price movements - driven by
increases in world prices and the weaker NZD - explain the bulk of this growth. A breakdown of the export data by
category will be made available with the final trade release on 12 July. As discussed below, this is likely to be of
some interest to markets.
Total import values were very close to our expectations. Within that total, we are encouraged that plant and machinery
rose to its highest level this year. Imports of crude oil fell to its lowest level since 1999, but this is highly likely
to be a matter of timing. The estimated level of imports for the three months to May was 7.9% higher than a year
earlier. Excluding `lumpy' imports of capital transport and military equipment, `core' imports for the 3 months to May
were 11% higher than a year earlier. Allowing for price movements, core import volumes remain very subdued.
Commentary
In our note on the April trade release, we had noted our disappointment at the apparent lack of export growth outside of
the primary goods sector, with the April data being especially disappointing in that regard. However, we noted that we
would reserve our judgement until seeing the May data. This reflected our concerns that the timing of the Easter and
ANZAC public holidays may have had a hand in generating the weak result.
As noted above, a breakdown of the May exports data will not be released until 12 July. However, it seems likely that
that breakdown will show a bounce-back across many of the categories that had showed uniform weakness in April. If so,
our growing concerns about the narrowness of recent export growth would be alleviated to some extent.
A further possibility, but one that we don't see as particularly likely, is that we and the market have overlooked the
impact of a significant one-off re-export (a plane or ship would be obvious examples). Unfortunately, at this stage,
Statistics NZ are unable to provide any further information on the composition of exports in May.
Taking the data at face value, even allowing for some bounce-back from a weak April, today's outcome of sufficient
strength to at least raise the possibility that either export prices or volumes are rising at a slightly greater rate
than captured in our central projections.
Today's result reaffirms the trend improvement in New Zealand's current account deficit that we have been forecasting
for some time. We expect the annual deficit to fall to 3.8% of GDP in Q2, from 4.8% in Q1. These figures will be
reported on 29 September. A further reduction towards 3% of GDP is expected by year-end.
Together with yesterday's robust consumer confidence and building consents data, today's data provides further evidence
to suggest that the New Zealand economy is continuing to weather the global slowdown in good shape, further reducing the
already very small chance of a 25bps rate cut by the RBNZ on 4 July.
Next Trade Release: May (Exports), 12 July.
Darren Gibbs, Senior Economist, New Zealand