Continuing export strength questioned

By Phil Boeyen, ShareChat Business News Editor

Thursday 12th July 2001

New Zealand's strong May trade surplus is unlikely to be sustained according to a market report.

Deutsche Bank's research arm says the May surplus, which was been confirmed Thursday slightly higher at $665 million from the provisional figure of $652 million, came mainly from a few primary exports.

"The majority of the $300 million better than expected result in May appears to have stemmed from another month of exceptionally strong dairy exports (especially casein), as well as very strong exports of meat and animal skin products," says Global Markets Research.

"As such, we are less confident that this level of exports can be sustained given underlying growth in primary goods volumes and the likely path of world prices."

There is also concern at the lack of growth shown by non-primary exports.

"We had been hopeful that at least some of that strength may have reflected in rebound in exports in the non-primary sector - where the net impact of a weaker world economy and the weaker NZD should be most readily observed - after an extremely weak result in April.

"While non-primary exports improved a little relative to April, the degree of improvement was disappointing."

The value of exports for the three months to May was 20% higher than a year earlier and Global Markets says it thinks that price movements account for the bulk of the increase.

The research group says although the new data may confirm Reserve Bank concerns that the global slowdown is having more impact that previously thought, this is balanced by stronger economic news from Australia.

"It seems reasonable to assume that a pick-up in Australia (if sustained) should improve prospects for New Zealand's manufactured exports over the second half of this year, as will continued weakness in the NZD."

"Our central view remains that the balance of international and domestic data over the next five weeks will rule out a final 25bp easing move in August."

Earlier this month the Reserve Bank left the OCR unchanged at 5.75%.

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