NZ records NZ$1.3 bln merchandise trade surplus in year to November, first for Nov year since 2001, Stats NZ says

New Zealand recorded a merchandise trade surplus of NZ$1.3 billion in the year to November 2010, the first surplus for a November year since 2001, Statistics New Zealand said today.

ASB economist Jane Turner said the rising annual trade surplus over the past year was testament to a recovery in export earnings, particularly from strong dairy prices and improved forestry export earnings.

"Export earnings are up 16% on year-ago levels. Contributing to the recovery has been a 32% increase in dairy exports, mainly due to higher prices," Turner said.

"Higher export receipts for logs lead the 33% increase in forestry products. Meanwhile, aluminium exports are up 33% and iron and steel exports are up 49%," she said.

In the November 2010 month, New Zealand recorded a merchandise trade deficit of NZ$186 million, or 5.1% of exports. This compared with an average November deficit of 24% of exports for the previous five years, Stats NZ said.

Turner said the monthly deficit was close to economist expectations of a NZ$150 million deficit.

The reason: increased export earnings

The strength of emerging Asian economies was a large factor behind the strength in NZ export earnings, Turner said.

"Indeed, exports to China are up 46% on year-ago levels largely due to increased exports of dairy and logs. Continued growth in China should underpin demand for commodities over the next year. However, weather remains a risk to agricultural production volumes (although recent rain has helped improve soil moisture conditions)," she said.

"The strength in commodity prices, particularly dairy, has been a positive development for NZ agricultural exporters over the past year. However, looking ahead, recent substantial increases in other food commodities, particularly sugar and wheat, will begin to flow through as higher import prices, slightly reducing New Zealand’s still-favourable international purchasing power. Indeed, New Zealand drivers would have not appreciated the recent increase in petrol prices ahead of the holiday season.

"Further, higher prices for feed will limit the ability of farmers to cushion the impact of dry conditions and potentially reducing agricultural volumes. These factors remain key risks to a relatively fragile economic recovery.  Nevertheless, the trade balance has been improving over the past year for the right reasons: increased export earnings," Turner said.

Here is the release from Statistics New Zealand:

The value of November 2010 export goods was $589 million (19 percent) higher than November 2009, Statistics New Zealand said today. The total value of goods exported in November 2010 was $3.7 billion.

“The trend returned to 2008 levels in May and has remained at those levels,” overseas trade manager Neil Kelly said. “The trend in export values has risen since October 2009 and although slowing in recent months, remains similar to the previous high in late 2008.”

The milk powder, butter, and cheese commodity group was the major contributor to the increase in November export values, led by unsweetened whole milk powder.

The total value of goods imported for November 2010 was up $495 million (15 percent) from November 2009, to $3.8 billion.

Mechanical machinery and equipment, and vehicles, parts, and accessories, were the leading contributors to the increase in imports.

The trend for total merchandise imports has fallen slightly since June 2010 and is 17 percent below its peak in September 2008.

In November 2010, the trade balance was a deficit of $186 million (5.1 percent of the value of exports). This compares with an average November deficit of 24 percent of exports for the previous five years.

The annual trade balance for the year ended November 2010 was a surplus of $1.3 billion (3.1 percent of exports). This is the first surplus for a November year since 2001.

Here is ASB economist Jane Turner's take on the figures:

 

The trade balance recorded a deficit of $186 million in November, very close to market expectations of $150 million. As a result, the annual trade surplus increased to $1.35 billion, from $1.26 billion previously. The rising annual trade surplus over the past year is testament to the recovery in export earnings, particularly from strong dairy prices and improved forestry export earnings.

Export earnings are up 16% on year-ago levels. Contributing to the recovery has been a 32% increase in dairy exports, mainly due to higher prices.  Higher export receipts for logs lead the 33% increase in forestry products.  Meanwhile, aluminium exports are up 33% and iron and steel exports are up 49%.  

Imports are up 15% on year-ago levels, with increases broad-based across intermediate, consumption and capital goods.

Implications

The strength of emerging Asian economies is a large factor behind the strength in NZ export earnings. Indeed, exports to China are up 46% on year-ago levels largely due to increased exports of dairy and logs. Continued growth in China should underpin demand for commodities over the next year.  However, weather remains a risk to agricultural production volumes (although recent rain has helped improve soil moisture conditions).

The strength in commodity prices, particularly dairy, has been a positive development for NZ agricultural exporters over the past year. However, looking ahead, recent substantial increases in other food commodities, particularly sugar and wheat, will begin to flow through as higher import prices, slightly reducing New Zealand’s still-favourable international purchasing power. Indeed, New Zealand drivers would have not appreciated the recent increase in petrol prices ahead of the holiday season.

Further, higher prices for feed will limit the ability of farmers to cushion the impact of dry conditions and potentially reducing agricultural volumes. These factors remain key risks to a relatively fragile economic recovery.  Nevertheless, the trade balance has been improving over the past year for the right reasons: increased export earnings.

(Updates with ASB economist comment)