Exports to China help lift surplus to 'healthy' $858m

Imports are collapsing but exports are rising, especially to China after the free trade deal which came into force late last year.

That helped pushed the May trade figures to a "very healthy" $858 million surplus, economists said the highest level in 16 years.

Statistics New Zealand figures show the surplus for the month was equal to 21.7 per cent of exports the highest percentage since 1993. Exports hit $4 billion in May, up almost 6 per cent on the same month last year.

New Zealand has run a string of trade surpluses since February helped by farm-based exports and a slump in imports because of the recession, ASB Bank economists said.

The surplus was much bigger than most economists expected and helped reduce the annual deficit to just more than $3b.

The strong trade figures suggest the economy may continue in recession in the June quarter, but there will be a modest upturn in the September quarter.

Imports fell more than 20 per cent, by $809m to $3.1b, reflecting a drop in oil, vehicle and fertiliser imports.

Car imports were less than half the value recorded in the same month last year, but there are signs that vehicle imports are starting to steady. Consumer goods are essentially unchanged from a year ago.

Exports rose almost 6 per cent, $218m up on May last year, despite the recession and still-high New Zealand dollar. Dairy product exports were up as production bounced back from last year's drought. Sales were also up for kiwifruit, vegetables and meat.

Fruit exports in May were up 20 per cent, mainly because of higher values for kiwifruit.

Deutsche Bank economist Darren Gibbs said the trade figures showed New Zealand's relative resilience in the global downturn, helped by rising volumes of commodities and some export prices holding up. Exports to China accounted for 80 per cent of the rise in exports during May, mainly from milk powder, butter and cheese, and logs and wood. New Zealand milk powder sales have risen sharply after the melamine contamination scandal in China last year.

The free trade agreement with China came into force last October.

Wellington Chamber of Commerce chief executive Charles Finny said the agreement was "almost certainly" a factor in the 92 per cent jump in exports to China in the three months to the end of May, compared with the same period last year.

The export figures showed the importance of trade deals and suggested the eventual economic recovery was likely to be export-led, Mr Finny said.

New Zealand's food exports were less vulnerable to the global economic downturn, he said.

Dairy exports to China this year jumped dramatically after Fonterra's sales of milk powder got an unexpected boost after the melamine scandal. As a result, Chinese consumers opted for imported products, and Fonterra expected to treble dairy exports there this year.

Exports also held up despite a slump in aluminium sales, down a massive $176m on the three months to May last year, a fall of 46 per cent, reflecting the drop in production and lower metal prices.