Trade deficit worst on record since '76 oil crisis

By NZPA

Monday 27th February 2006

Spiraling fuel costs pushed New Zealand's trade deficit to $7.1 billion in the year to January, the highest annual shortfall since the oil crisis of 1976, Statistics New Zealand said today.

The deficit blew out to 23% of exports, against an annual January average of 7.8%, the government agency said, as import s swelled by $3 billion to a record $37.9b.

Export revenue, on the other hand, declined by $172m to $30.8b in the January year.

The data added to a bevy of weak economic data in recent weeks and had an immediate negative impact on the New Zealand dollar, which tumbled to US65.88c, from its US66.29c local open.

The picture for the January month was even more bleak, with the monthly deficit clocking in at $935m, or 42.6% of exports, more than double the $400m figure expected by economists.

Exports of merchandise goods for January 2006 were $2.2b - 2.6% lower than the same month a year earlier - due largely to lower values for meat, milk powder, butter and cheese.

Higher import values for petrol and petrol products, and aircraft, drove the monthly imports value for January to $3.1b, up 22.5% on the same month a year ago.

Economists said the data was consistent with a slowing domestic economy.

"The trends underneath this data suggest it's far from the end of the line as far as the trade deficit is concerned," Bank of New Zealand senior economist Craig Ebert said.

New Zealand posted a surprise $292m trade deficit in December, well short of the $800m deficit expected by economists, giving the New Zealand dollar a temporary reprieve.

Today's data showed the December figures were an anomaly, economists said, and the case for the Reserve Bank to hold interest rates was now well entrenched.

"We were expecting to see a deterioration from the better-than-expected result in December and we have certainly got that," ANZ National Bank economist Sean Comber said.

"It's certainly not doing anything to dispel concerns about the size of the current account deficit."

The merchandise trade data measures the difference between what New Zealand earns for its exports, versus what it pays for its imports.

It makes up a big part of the current account, also known as the balance of payments, which measures all of New Zealand's transactions - including financial dealings - with the outside world.

Trade imbalances pushed the current account deficit to $12.9b in the September year, or 8.5 percent of gross domestic product.

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