Trade deficit smaller as farms recover
New Zealand ran a much smaller than expected trade deficit of just under $200 million in September, on the back of a strong lift in exports.
The recovery from last summer's drought is expected to boost exports even further in the coming year.
The annual trade deficit for the September year was $1.5 billion, narrower than the $2.1b seen in the August year.
Exports are bouncing back, driven by strong gains in dairy export prices.
Exports in September were up 17 per cent on the same month last year. In seasonally adjusted terms, exports hit a new high, with values rising more than 16 per cent between August and September.
Exports were also boosted in September by a big lift in crude oil exports, up $115m.
Rising logs and timber exports were up almost as much at $113m higher in September than a year ago. That was offset by a fall in aluminium exports.
China is again a key factor.
Exports to China in September were up 74 per cent or $347 million up on the same month a year ago. Whole milk powder exports to China were up $205 million and logs were up $81 million.
New Zealand is now just into an annual trade surplus with China, BNZ economists said. The strong demand from China has been a major support for the New Zealand economy.
Dairy volumes were actually flat in September quarter, but prices were up strongly.
The drought hit to farm production volumes had suppressed export values till now, but with the recovery from drought, the high prices would be more obvious in total export values in coming months.
Bank of New Zealand economist Doug Steel said the recovery from the early 2013 drought and high prices for mainly dairy exports were showing through, with the 52 per cent gain in September milk powder, butter and cheese exports in September compared with the same month last year.
"This is just the start of what is shaping up to be a very strong dairy export performance in the coming 12 months," Steel said.
Strong annual growth rates were expected in coming months as the peak milk flow coming through now was processed and shipped overseas "at very high prices".
That would be part of an extra $5b in revenue expected to flow through the dairy sector in the coming year. "It will be a strong impulse to economic activity" he said.
But a full recovery from the drought would take time and for meat exports would show through in the next season.
Westpac Bank senior economist Anne Boniface said they also expected to see export volumes rebound strongly over the balance of the year as the farm sector recovers from last summer's drought.
Export revenues should also lift on the back of high international prices for key exports such as dairy products, she said.
Meanwhile, weaker than expected imports in September were down $48m, or 1.2 per cent on the same month last year, at a total of $4b.
In seasonally adjusted terms, imports fell 8.6 per cent between August and September.
The overall trade deficit of $199m for September was equal to 5.2 per cent of exports.
That followed a $1.2b shortfall in August.
In seasonally adjusted terms, the September balance was equal to a $570m surplus, compared with a $439m deficit in August.