Exports grounded as Kiwi flys high in July

Exports grounded as Kiwi flys high in July.

The rapid appreciation of the Kiwi dollar - which hit a post-float high of US 0.8110 in the month of July - has continued to dilute the value of exports. New Zealand's trade deficit worsened in July as exports fell and the value of imports increased. The annual trade deficit now stands at a whopping NZ$6.32 billion, thanks primarily to a 13% fall in the value of exports over the year (imports have fallen 7.6% over the year) to July. New Zealand's Trade Weighted Index (TWI) rose to a record 75.4 in July, up over 20% from July 2006, and is undoubtedly pushing down the value of exports. Deflating the nominal value of exports by the TWI actually points to an increase in export volumes in 2Q and July (chart).

JPMorgan believes the outlook for export growth (in volume and value terms) remains positive. The significant run-up in New Zealand's main commodity prices (led by New Zealand's cash cow: dairy), the recent drop in NZD, and a solid global economic growth outlook for key trading partners will be supportive of export growth (chart) well into 2008.

Details from today's report:

According to Statistics New Zealand, the July monthly trade deficit of $791 million was 30% of exports; this was the highest July percentage since 1976. Exports of meat were down 21.8%oya thanks predominantly to falling prices, as the drought in Australia forced local farmers to cull live stock, which in turn drove down the price of meat. This trend will reverse as supply is soaked up. Imports of aircraft were down 89%oya due to large aircraft imported in July 2006.

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ENDS

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