NZ trade deficit at seven-year low

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New Zealand's annual trade deficit fell to its lowest level in seven years in November, but further improvements in the deficit as the economy picks up are considered likely to be limited.

Statistics New Zealand (SNZ) figures published today put the trade deficit for the year to November at $846 million or 2.1 percent of exports, compared to an average 16.3 percent of exports for the preceding five November years.

SNZ said the annual deficit was at its lowest level since September 2002.

For just the November month, the trade deficit was a lower than expected $269m, as imports and exports continued to fall compared to year earlier figures.

Exports in November were valued at $3.1 billion, down $614m or 16.7 percent from a year earlier, while imports were down $938m or 22 percent to $3.3b, Statistics New Zealand (SNZ) said today.

It was the eighth consecutive monthly fall for imports and the sixth consecutive month that exports had fallen compared with the same month of the previous year.

Despite the continuing declines, car imports rose compared to a year earlier for the first time after 13 months of falls. They rose $74m or 46.9 percent compared to November 2008, when the lowest November value since 1997 was recorded.

ASB economist Jane Turner said the sharp improvement in the trade balance during the past year was mainly due to a sharp drop in import values, due to weak domestic demand, compared to a more muted fall in exports.

As the economy began to recover this year, import demand was likely to pick up and limit further improvements in the deficit, she said.

SNZ reported the largest category fall in exports in November was in milk powder, butter and cheese, which dropped $250m or 24.9 percent.

That decline was led by unsweetened whole milk powder, which fell $81m or 24.9 percent due to lower prices, with quantities exported rising 48 percent.

The casein and caseinates category had the second-largest fall in exports for the month, down $60m or 51.8 percent, which was mainly price-driven, while quantities fell 9.8 percent.

Mechanical machinery and equipment was down $52m or 29.2 percent, the next largest decrease, while meat and edible offal exports fell $40m or 11.7 percent mainly due to a fall in frozen beef cuts.

The largest rise in exports was in crude oil, which lifted $86m or 11.7 percent, with quantities more than double those of November 2008. Crude oil shipments could be irregular, SNZ said.

Ms Turner said meat exports were likely to reman weak in the near term, hampered by falling NZ dollar returns for exported meat, as well as low slaughter levels.

Manufactured exports were likely to start to recover in 2010 as further signs were seen of economic activity stabilising in many key trading partners, she said.

While the rise in oil exports was exaggerated by the irregular timing of oil shipments, the underlying trend in oil exports had been improving as the Maari oil field increased production in the second half of 2009 and oil prices recovered from late-2008 lows.

The SNZ figures showed that among imports in November the largest fall was in the intermediate goods category, which fell $741m or 33.9 percent.

Falls in the category were widespread, with crude oil down $125m or 35.9 percent mainly due to lower prices, SNZ said.

Other commodities showing significant declines included natural calcium phosphates, where quantities almost halved, while in the fertilisers category there were large falls in both urea and potassium chloride.

Capital goods imports fell $226m or 29.4 percent in November, with mechanical machinery and equipment -- down $137m or 25.9 percent -- the most notable contributor to the fall.

Ms Turner said widespread weakness in mechanical machinery and equipment imports in the past year reflected low levels of business investment.

"More recently investment intentions have improved, and we expect business investment to gradually improve over 2010, as activity and profitability recovers," she said.

The November trade deficit of $269m was equal to 8.8 percent of the value of exports, and compared with an average November deficit of 27.6 percent of exports for the previous five years, SNZ said.

The median forecast from a Reuters poll of economists had been for a November month deficit of $400m.

- NZPA