Trade deficit swells to $5.8B as spending spree continues

By NZPA

Friday 28th October 2005

New Zealand's trade deficit improved a touch in September, paring back from August's record, although the demand for imported capital goods like boats, ships, aircraft and machinery kept the annual figure on an upward trend.

Statistics New Zealand figures out today show the trade balance - the difference between what the country earns for its exports, versus what it pays for imports - was $992 million in September.

That bettered economists' expectations for a $1.1 billion monthly deficit, and retracted from August's $1.1 billion figure, the highest on record.

On an annual basis, however, the trade deficit stretched out to $5.8b, fractionally better than economists' expectations of $5.96b but still far higher than the $4b deficit posted a year earlier.

The cost of imports rose 5.4% to $3.34b in September, while export revenue was 8.8% higher at $2.35b.

The government agency said a decline in import costs for vehicles, parts and accessories offset higher values for mechanical machinery and equipment in September.

On the export side, higher prices for meat and edible offal, milk powder, butter and cheese were the key contributors to the monthly rise.

Countries contributing to the higher export value were the United States, Australia and Britain.

Today's data compares with an average trade deficit for September months during the past 10 years of just $503m.

For the September quarter, the seasonally-adjusted value of imports rose 2%, due largely to a 34% increase in capital goods, excluding motor vehicles but including boats, ships and aircraft.

Exports fell 3.4% due to lower exports of milk powder, butter and cheese.

Economists said the data was slightly better than expected, but did little to address the country's massive current account deficit, which stretched to 8% of gross domestic product in the year to June.

"The under-lying trade balance in my mind remains very poor," Cameron Bagrie, head of market economics at ANZ National Bank, said.

"Turning that balance around is going to require a multi-pronged approach: we need a lower New Zealand dollar, we need weaker domestic demand, and we need a better policy platform to change New Zealand's borrow and spend behaviour," Bagrie said.

Andrew Fung, an economist with Westpac Bank said the figures showed the high New Zealand dollar is continuing to constrain exports and act as an incentive for imports.

"On the face of the headline numbers, it looks like that's still happening."

The New Zealand dollar was trading at US79.72c following the data release, from US70.65c in earlier trading.

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