NZ trade deficit almost halves in October from a year ago as imports drop faster than exports (Update 3)

New Zealand's merchandise trade deficit contracted to NZ$487 million in October from NZ$994 million a year ago as both import and export values continued to trend downward, Statistics New Zealand said. (Update 3 includes video links.) The October 2009 trade deficit represented 16.4% of exports, which was below an average of 30% of exports for the previous five years, Stats NZ said. Trend values based on seasonally adjusted figures showed the trade balance fell into negative territory in October, with a deficit of NZ$23 million from a surplus of NZ$13 million in September. Seasonally adjusted exports (down 1.3%) fell more than imports (down 0.1%) over the month. See Bernard Hickey's commentary on the export and import figures on YouTube here, and on our video page here. "The value of both merchandise imports and exports fell in October 2009 compared with October 2008, down 28.3% and 22.4%, respectively. Imports and exports are showing sustained declines from the high 2008 levels." "The import and export trends (which remove seasonal and irregular fluctuations) have continued to decline since peaking in the latter half of 2008. The imports trend has fallen 25.3% since August 2008, the longest period of decline and the largest fall in this trend since the series began in 1988." "Most import commodity categories contributed to the NZ$1.4 billion fall in import values. The largest contribution came from petroleum and products (down NZ$432 million or 49.3%), led by crude oil, mainly due to lower prices. Mechanical machinery and equipment was the next largest decrease, with falls across most commodities." "Similarly, most export commodity categories contributed to the NZ$859 million decline in export values in October 2009. Exports of milk powder, butter, and cheese were the largest contributor to the decline, down NZ$318 million (32.0%) from last year's high levels. This decrease occurred despite quantities exported being the second highest on record (behind May 2009), and 30.9% higher than October 2008." ASB economist Jane Turner said looking ahead, the trade balance is unlikely to hold onto its gains from the past year with import demand stabilising and the export outlook remaining subdued:

Over the past year smaller than usual trade deficits and a string of surpluses have helped drive a sharp improvement in the annual trade balance. The smaller trade gap has helped to underpin some of the improvement in the current account deficit. However, looking ahead the trade balance is unlikely to hold onto its gains. Import demand has now stabilised and volumes are likely to soon recover in line with domestic demand. Meanwhile, the export outlook remains subdued with the high NZD hampering exporter's ability to remain competitive. Exporters in American and European markets will face challenging times contending with the strong NZD and weak demand in these markets. However, some offset will come from exports to Australia, benefiting from strong Australian domestic demand coupled with a favourable cross exchange rate.