Merchandise Trade Balance (April 2002)

Data Flash (New Zealand)

Result: A trade surplus of $19m was recorded in April, well below market expectations of a $286m surplus.

Implication for markets: There was little market reaction to the outcome.

Commentary

After surprising on the high side in March, the April trade surplus printed well below market expectations. Relative to our own forecasts, exports were marginally weaker than we had expected but imports were substantially stronger. Taking March and April together, the market's forecast errors are broadly offsetting.

This month's stronger than expected import data was due to a combination of still elevated motor vehicle imports; one-off capital transport items (including a helicopter worth $50m+) and higher than expected imports of crude oil. Imports of core consumption goods, machinery and plant, and other intermediate goods were broadly in line with expectations.

The weak April surplus has led to a resumption in the deteriorating trend in the annual trade balance, which fell from +$865m to +$536m. We expect the annual trade balance to have moved into deficit by mid-year. As a result, while the annual current account deficit declined to 3.2% of GDP in the 2001 calendar year, a deficit of over 4.5% of GDP appears likely for the current calendar year.

The prospects for renewed improvement in the current account deficit at a later date will depend on the strength of the global recovery and the path of the NZD. The view implicit in our March Economic Forecasts was that the bulk of the deterioration in the annual deficit will have occurred by Q3 2002, with the deficit remaining broadly stable over the subsequent 18 months. This path still seems likely. However, we have one eye on the NZD, which has already met our 3-month target of USD0.47.

Key Points

A provisional merchandise trade surplus of $19m was recorded in April, compared with a surplus of $349m in April 2001. The average deficit for April over the past 10 years is $149m. The annual trade surplus was $536m, compared with a surplus of $865m in March and a deficit of $561m a year earlier.

The result was much weaker than the median market expectation of a $286m surplus. Export values were in line with expectations but import values were much stronger than expected.

The strength in import values was largely due to volatility in the capital transport and oil categories. Motor vehicle imports have also been slow to fall back following the surge that pre-dated the introduction of new regulations on 1 April. To some extent, strong migrant flows are likely to be underpinning demand for motor vehicles. Nonetheless, we expect car imports to recede from recent highs over coming months.

The value of exports for the three months to April was just 1.2% higher than a year earlier, with falling prices largely offsetting modest growth in volumes (the average trade-weighted index was 5% higher than a year earlier).

Despite a strong April month, the estimated level of imports for the three months to April was just 2.4% higher than a year earlier. Nominal GDP has grown by around 6% over the same period. Strong growth in import volumes has been partially offset by lower prices, especially for oil, including the impact of a stronger NZD.

Darren Gibbs, Senior Economist, New Zealand

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