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May trade surplus biggest since 1993 as oil, car imports slump (Update 1)
June 29th, 2009
New Zealand recorded its fourth consecutive monthly trade surplus in May as the value of merchandise imports fell 20.7% from a year before while merchandise exports rose 5.8%. The fall in imports was the largest since February 1993. (Update 1 includes economist comment.)
This improvement should help reduce New Zealand’s current account deficit, but it does show consumer spending on imports remains weak and the stronger New Zealand dollar through June may constrain further improvement in the trade balance later in 2009.
The surplus of NZ$858 million in May was 21.7% of exports. By this measurement, this was the largest trade surplus since June 1993, Government Statistician Geoff Bascand said. The value of exports over the month was NZ$3.96 billion.
For the year ending May 2009, New Zealand had a trade deficit of NZ$3.04 billion. This was the smallest deficit for a May year since May 2003.
Economists had expected a monthly surplus of around NZ$250 million. A Bloomberg poll showed the median forecast for the yearly balance was a NZ$3.64 billion deficit.
Exports to China accounted for 80% of the overall 5.8% increase in exports with milk powder, butter, and cheese; and logs, wood, and wood articles making the largest contributions, Bascand said. New Zealand’s free trade agreement with China came into effect at the start of October last year.
Exports to China, New Zealand’s third largest export market in May, were up 96.7% from May 2008 to NZ$357 million. Exports to Australia were up 11.2% to NZ$780 million, and exports to the USA fell 6.2% to NZ$398 million.
Of the 20.7% fall in imports, 60% of this was from falls in petroleum products and passenger motor cars. Imports form Australia were down 17.7% to NZ$570 million, while imports from China rose 0.5% to NZ$480 million. The total value of imports over the month was NZ$3.1 billion.
New Zealand’s monthly Trade Weighted Index (TWI) in May 2009 was 58, the highest since October 2008 (when it was 60.7). The TWI was 69.3 in May 2008.
ASB economist Jane Turner warned they were wary of the sustainability of trade surpluses:
May’s result was impressive with StatsNZ noting this was the largest surplus as percent of exports since June 1993. The trade balance has continued to surprise into the second quarter of 2009 and the annual trade deficit has made a strong recovery ($3.04 billion compared to a trough of $7.31 billion in February 2006). Last week’s data showed that the stronger traded goods position drove a recovery the current account deficit to 8.5% of GDP (from 9%) and based off today’s data we can expect further recovery over Q2.
We remain wary on the sustainability of trade surpluses. Import volumes have fallen sharply over the past few months, but are likely to stabilise in the second half of this year, along with the bottoming out in domestic activity. Meanwhile, agricultural exports are traditionally seasonally weak over the second part of the year and the underlying weakness in other exports (such as manufactures) is likely to become more apparent.
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Tags: ASB, China, Exports, Free Trade, Imports, Jane Turner, Trade Balance
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June 29th, 2009 at 1:42 pm
When you look at the detailed figure there is still a lot of upside in these figures
1/ There is still 6 mths of high oil prices to drop out of the annual figure (table 9)
2/ Stats commentary on the 3 month movements-
Exports of “Aluminium and aluminium articles recorded the second largest decrease, down $176 million (46.2 percent), led by a $159 million decrease in unwrought aluminium”
This should recover when Bluff fixes their transformer problems.
Imports of “Electrical machinery and equipment recorded the largest increase for the quarter, up $171 million (19.4 percent), led by increases in telecommunications transmission equipment (up $82 million), and electric generating sets and rotary converters (up $33 million).”
My quess this is the imports of Telecoms new cell network and the Turbines for the wind farm behind Wgtn. Both these item wont be repeated.
My guess is the trade deficit will correct quite quickly.
This may affect the exchange rate to make the NZD stronger because although there is a Current Account deficit most of this is caused by profits by Foreign firms which tends to be retained not remitted. The trade surplus will increase the demand for NZD.
June 29th, 2009 at 2:19 pm
This is good news. Makes me wonder whether New Zealand’s future isn’t much more complicated than simply finding out what the Chinese want and exporting it to them.
June 29th, 2009 at 2:54 pm
Don’t get too excited. The investment income deficit is the 800 lb gorilla, when it comes to our current account deficit. That is, we can push out impressive trade surpluses, but it won’t make a lot of impact on our current account deficit, which is currently 8.5% of GDP. The investment deficit is structural & would take heroic trade figures to surmount. Structural in that it comprises interest sent overseas in response to all that lovely debt we were so keen on taking on, plus the ownership of such a huge chunk of our profit-making sector, notably banks. These things aren’t going to change.
This investment deficit was $3,272 million in the March quarter of 2009, so we aren’t moving forward – just moving backwards slightly slower than previously. http://www.stats.govt.nz/products-and-services/media-releases/balance-of-payments-intl-investment-position/balance-of-payments-and-international-investment-position-mar09qtr-mr.htm.
June 29th, 2009 at 3:23 pm
Philly,
Completely agree. And remember that every year house prices stay high, another batch of FHBs take on more debt than is being paid off further up the chain due to the fact that debt levels required to buy a house are far higher now than 20 years ago. Our debt is like a pig in the python, but the pig is long and still has half its back sticking out. We either cut off the end, and stomach the existing pain, or keep houses overpriced and suffer the increasingly bad consequences of long term debt greed. The impact on our current account of high debt levels for a small proportion of the population has been severe. Whats it going to be like in 20 years if MOST HOUSEHOLDS were required to take on huge debt.
June 29th, 2009 at 4:30 pm
Wont get too excited but even countries have to earn more than they spend so they can pay off debt
June 29th, 2009 at 4:31 pm
Jimmy: Yes, totally. NZ has been splurging on debt for decades. It has been a third of a century – A THIRD OF A CENTURY – since NZ had a SINGLE YEAR when we actually didn’t lose money. So the debt is now huge & structural, & has a life of its own – that is, it is self-propagating.
And its not likely to get better any time soon, regardless of good trade figures. Although NZers seem to be cutting down on the consuming splurge, the govt is going to step boldly into the breach.
Your point on housing is an interesting one. Some analysts say that the housing price is set to stabilise at its present nose-bleed levels. Since the current price has been created on external debt, for which we have to borrow to pay the interest, maintaining the price level means continually expanding the overall debt. Which is already over 90% of GDP, & being continually added to to provide profits for Aussie banks etc. I really struggle to see that being sustainable!
June 29th, 2009 at 8:15 pm
Sincerely hope that some contributors from last week take note where the bulk of export receipts came from [ milk powder, butter and cheese !!!!!!. Wonder if they possess the intelligence to work out who produces it.
June 29th, 2009 at 9:52 pm
Jimmy, I agree to some extent about the house prices, but something that could balance it out and make it not really matter would be if we actually starting borrowing the money from ourselves, ie our own depositors and not from overseas, then surely it makes it much less of an issue what house prices are at.
We would need to get back to a savings culture for that though, which would probably have the knock on effect of reducing house prices anyway.
Having banks of our own taking the cream out of it would be nice too.
Maybe the recent events will help people knock on the head a bit the recently relaxed views about taking on any kind of debt, especially when used to buy consumer goods.
June 29th, 2009 at 11:19 pm
Phil – I think this would be a recipe for disaster. Look at the situation in Estonia and Hungry, two countries that are choosing to pauperise their countries economies whilst desperately holding on to the Euro peg. All in order to protect their middle class who have purchased mortgages denominated in Euro’s and Swiss francs.
NZ’ers have demonstrated that they lack the sophisticated financial acumen to be allowed to borrow in overseas currency. This would be a huge mistake and we could easily follow the Estonians, Hungarians if we let loose this particular genie out of the bottle.
IMHO it would be better to let the Australian banks take the risk, give RBNZ a license to buy foreign currency big time, force the currency down and then when it all goes pear shaped put the capital into Kiwi Bank and buy the distressed mortgages. A little bit of deviousness by our reserve bank could catch the buggers that play the carry trade red handed and wipe a large chunk of the overseas debt. Do they have the balls ?
June 29th, 2009 at 11:54 pm
Simon, I haven’t been following those countries, but I’m not sure I’m following you anyway. Are you saying these countries got in trouble because they borrowed other currencies from other countries?
I’m suggesting we don’t borrow from overseas currencies, but get our savings up so we can borrow from ourselves, hence effectively eliminating much of the need to worry about how much debt there is, because if all the debt you have is effectively borrowed from yourselves it doesn’t matter as much.
June 30th, 2009 at 4:22 am
Simon D: I often find myself wondering if JPM & friends have bought into Australasian banks just for the carry trade. Bollard’s reluctance to lower the OCR… and efforts to tell the world it will stay up is just the sort of news forex wizards on Wall Street like to hear. Short of discovering a Tasmanian “North Sea sized” oil field off our shores, it looks like our emergence from recession will be tied to a global recovery. Just as the Chinese don’t dare dump their US treasuries at too quick a pace, we don’t dare pay off our debt too quickly, or S&P will downgrade NZ. We’re in a pickle all right.
June 30th, 2009 at 11:02 am
Phil you are right on the money!!! The simple rules of supply and demand were working just fine mid last year with high interest rates starting to encourage saving and disencouraging buying more over priced houses, until Bollard dropped interest rates like a stone. The lower interest rates make houses more ‘affordable’ or at least look more affordable (in reality the mortgage is still the same just the associates costs are temporarily lower) and the flip side is that it is no longer useful to put money in the bank at these rates. We are once again melding too much in the economy and practice price fixing. This will only drag out the housing pain for an extra 6 years or more…
July 1st, 2009 at 11:54 am
Phil – apologies for the confusion. I reread your first post and have realised I got the wrong end of the stick.