NZ's trade deficit widens in July as imports surge

New Zealand's trade deficit widens in July as imports surge

New Zealand's trade deficit widened to NZ$781 million in July (JPMorgan -NZ$425 million, consensus -NZ$538 million) from - NZ$207 million in June (revised from NZ$223 million). The July deficit marked the fifth straight monthly deficit. In the 12 months to July, though, the deficit narrowed to NZ$4.4 billion, from NZ$4.5 billion in June.

The blow-out in the deficit was mainly attributable to surging imports, up 22%oya compared to 17% in the previous month, which have trended higher in recent months in line with increasing fuel costs. The biggest increase in imports was reported in petroleum and products (+58%oya).

On the other side of the ledger, exports were up 30%oya, down slightly from 31%oya in June. The largest export increase was from crude oil (528%oya), the third largest export commodity after dairy and meat products, owing to elevated crude prices and increased production from the Tui oil field, which commenced in July. The second largest increase was in exports of milk powder, butter and cheese (+51%), as the impact of still-elevated dairy prices was offset by lower volumes owing to the drought.

The trade deficit should narrow over the remainder of the year. The upward trend in imports should ease alongside weaker domestic demand, while the anticipated depreciation of NZD should boost the competitiveness of Kiwi exporters. That said, a sharper than expected slowdown in global demand remains a key downside risk to the export outlook.

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