Smaller trade deficit in October due to weaker than expected imports

By Christina Leung*

The trade balance posted a smaller than expected deficit of $282 million in October.

This largely reflected weaker than expected imports, which fell 2.1% over the month on a seasonally-adjusted basis.

The decline in imports was driven by lower imports of petroleum and related products, a volatile component that can be affected by shipment timings.

Meanwhile, the 5.3% increase in exports, seasonally-adjusted was broadly in line with our expectations. Higher exports of crude oil played a key part in this increase.

In regards to NZ’s core commodities exports of dairy, meat and forestry the results were mixed. Exports of dairy products fell, reflecting both lower volumes and the recent easing in prices. Meanwhile, lower export volumes of meat were the key driver behind the decline in meat exports.

Encouragingly, exports of forestry products are showing signs of recovery. This follows a period of oversupply in key markets earlier this year. Rebuilding activity in Japan in the wake of the natural disasters early this year has the potential to underpin a continued recovery in forestry exports over the coming year. 

While there have been signs the upward trend in exports has plateaued in recent months, the trend measure in exports remains at record-high levels. We expect continued demand for our core commodity exports will support exports at these high levels over the coming months.

Implications

The smaller than expected deficit in October was due to weaker than expected imports. The continued strength in exports is encouraging.

While there has been an easing in exports of dairy and meat, these remain at reasonably elevated levels.

However, ongoing uncertainty around the global outlook presents downside risks to NZ’s export performance, and weaker trading partner growth is likely to slow demand for some exports.

The global outlook continues to be the key influence in the RBNZ’s setting of monetary policy.

With little in the way of concrete progress made on the resolution to the European debt crisis, we expect the RBNZ will hold off raising the OCR until at least June 2012.

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 Christina Leung is an economist as ASB Bank. She can be contacted at Christina.Leung@asb.co.nz