Lumpy imports drive bigger July trade deficit than expected

Monday 26th August 2019

New Zealand posted a much wider trade deficit than expected of $685 million in July but economists aren't fazed, saying it was skewed by lumpy imports.

Economists polled by Bloomberg had expected a monthly deficit of $254 million and an annual deficit of $5 billion. The annual deficit came in at $5.5 billion.

"Don’t fret about the much bigger than anticipated merchandise trade deficit reported for July. It was enlarged principally by greater than expected imports, in turn, partly because of aircraft imports. Merchandise exports were broadly in line with market expectations," said Bank of New Zealand economist Craig Ebert.

ANZ agri economist Susan Kilsby agreed the difference was largely on the import side and said the export data was in fact stronger than she expected.

Milk powder, butter and cheese exports fell 16 percent, or $243 million, in July. Butter exports alone fell 51 percent, or $139 million.

Exports of logs, wood and wood articles fell 19 percent, or $85 million. Logs alone fell $67 million, or 19 percent, but the quantity exported was little changed, Stats NZ said.

Kilsby said the impact on forestry was mainly in price, not volume. "We know that tree felling is slowing and in-market prices have already responded positively and exporters are relatively confident that prices will continue to firm as supply slows," she said.

Meat and edible offal exports fell 6.6 percent, or $42 million.

Exports to China, however, lifted 2.4 percent on the month to $1.37 billion and were up 20.4 percent on the year. Exports to Australia, however, were only up 0.8 percent at $701 million and were down 1.8 percent on the year.

Imports, meanwhile, rose $173 million, or 3.1 percent, to $5.7 billion, the largest import value since November 2018.

Transport equipment rose $96 million, or 37 percent, led by aircraft, up $124 million. Stats NZ noted transport equipment can fluctuate depending on the arrival of high-value items.

Imports from China dipped 1.8 percent on the month to $1.07 billion and were up 11.5 percent on the year at $12.9 billion.

ASB rural economist Nathan Penny said widening of the deficit will likely be temporary.

"New Zealand’s key food export values remain firm, while domestic demand is soft. We expect this combination to lead to a narrower annual trade balance over 2019 and 2020, although we are wary of global growth risks," said Penny.

(BusinessDesk)

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