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NZ posts bigger-than-expected trade deficit in August

Tuesday 26th September 2017

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New Zealand posted a bigger-than-expected goods trade deficit in August as exports of milk powder, butter and cheese declined and imports of crude oil and petroleum products jumped higher.

The country had a trade deficit of $1.235 billion in August, little changed from the $1.24 billion deficit in August last year but ahead of the $968 million average monthly deficit in August over the last five years, Statistics New Zealand said. The deficit was bigger than the $825 million median forecast in a Bloomberg survey of 10 economists. 

The New Zealand dollar initially weakened on the news, falling as low as 72.45 US cents from 72.62 cents immediately before the 10:45am release. It was recently trading at 72.54 US cents.

The monthly trade balance was hurt by a drop in the value of dairy exports, the country's single biggest export commodity, which declined 2.6 percent to $463 million reflecting a smaller quantity for the month. The agency noted that the winter August months are generally lower-value and lower-quantity months for dairy commodity exports.

"NZ recorded a larger than expected monthly trade deficit over August," ASB senior rural economist Nathan Penny said in a note. "A sharp reduction in dairy export volumes accounted for most of the surprise.

"However, the fall follows a large run-up in dairy export volumes. Between March and June volumes had increased by 33 percent, so in this context, a pullback is no surprise," Penny said. "This also points to the earlier run-up being driven by a rundown in stocks. Indeed, as dairy production picks up over the new season, dairy export volumes will recover."

Overall, exports rose 9 percent to $3.69 billion in August compared with the same month a year earlier, lagging behind expectations for the month of $4.05 billion. The value of fruit exports jumped 29 percent to $311 million and kiwifruit was the leading contributor to the gain, with exports up 37 percent to $268 million. Exports of gold kiwifruit increased 55 percent to $45 million, while the quantity rose 26 percent. Green kiwifruit exports increased 25 percent to $28 million, while the quantity rose 17 percent.

Other exports which gained in the month were petroleum and products include crude oil, which increased $54 million, food preparations including infant formula, up $44 million, and mechanical machinery and equipment, up $27 million.

Meanwhile, goods imports rose 6.5 percent, or $301 million, to $4.92 billion in August, ahead of expectations for the month of $4.8 billion. The increase was led by a 93 percent jump in the value of crude oil, which added $147 million to imports.

The statistics agency noted that imports of crude oil and other petroleum products tend to move up and down from month to month, depending on the timing of shipments.

The annual deficit in the year to August was $3.2 billion, little changed from $3.12 billion a year earlier. Economists surveyed by Bloomberg had expected an annual deficit of $2.91 billion.

"Monthly volatility aside, we expect the annual trade balance to narrow over the remainder of the year mainly on the back of firm agricultural export values," said the ASB's Penny.


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