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NZ trade gap unexpectedly widens as export growth slows

Wednesday 29th October 2008

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New Zealand's trade deficit unexpectedly widened last month as export growth slowed while growth in imports accelerated.

The trade gap widened to NZ$1.18 billion in September, the most since November 2005, according to Statistics New Zealand. Economists expected a deficit of NZ$550 million, based on the consensus in a Reuters survey.

Slowing demand for New Zealand's exports may be a harbinger of even worse times ahead as the financial crisis translates into weaker world economic growth. The US economy contracted last quarter and the UK's may have fallen into recession with the European Union poised to follow.

"Concerns remain around the export outlook, especially as major trading partner economic growth outlook is revised lower," Shamubeel Eaqub, economist at Goldman Sachs JBWere said. "We expect at least similar weakness to the Asian financial crisis."

Exports rose 8% to NZ$3.2 billion last month, led by kiwifruit, steel, casein and white wine. Imports jumped 24% to NZ$4.4 billion, with fertilizer and diesel among the biggest gainers.

Exports to Australia rose 21% to NZ$858 million and shipments to the US gained 19% to NZ$297 million. Exports to Japan fell 6.9% to NZ$253 million. China took 19% more last month at NZ$201 million, while shipments to the U.K. fell 35% to NZ$102 million.

The annual gap widened to NZ$4.99 billion from NZ$4.37 billion in the 12 months ended August 31.

Eaqub said weakening export growth adds to the need for further interest rate cuts by the central bank because the economy won't be able to rely on overseas sales to make up for sinking domestic demand.

The economy contracted in the first half of the year and may have continued shrinking through the fourth quarter, the first recession since 1998. The central bank slashed the official cash rate by 100 basis points to 6.5% last week and Eaqub expects another 50 basis points cut in December, with the OCR reaching 5% by mid-2009.

By Jonathan Underhill

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