Despite higher oil imports, trade deficit continues its positive trend (Update 2)

New Zealand had a $320 million trade surplus in February, its best monthly result since May 2009. But it was well below the $438 million surplus recorded in Febraury 2009. (Updated with: * BNZ economist Stephen Toplis sticking to his June forecast for the first Official Cash Rate hike; * ASB economist Jane Turner seeing a deterioration in the trade balance as consumption demand resumes) Imports in February rose 1.3% from the same month a year earlier pushed ahead by an irregular spike of crude oil, while exports fell 3.6% on the same basis, according to data released today by Statistics NZ. The trade surplus was below market expectations of $430 million, and well below BNZ Economics expectation of about $700 million. The lumpy oil import number contributed $310 million, or more than 10% of all February imports, and probably contributed most to the surprise result. Economists were expecting a more normal oil import level, although oil imports in February 2009 were unusually low. Despite this, the overall trade balance performance is a major improvement on previous years. For the year to February, the trade deficit was $347 million, whereas the average annual result since 2000 has been for a deficit in the 12 months to February of almost $3.6 billion. BNZ economist Stephen Toplis said the figures showed the external deficit is about to turn for the worse

None of the underlying weakness in this morning's monthly trade figures is any reason for us to change our view on GDP, the current account, or the OCR outlook. We already have a modest 0.4% for Q1 GDP growth. We already think the external deficit is close to turning for the worse. And in respect of the OCR, we have been highlighting the risks of the RBNZ delaying its first rate hike until July, rather than pushing the button in June, as remains our official call. Today's data certainly cement our reservations.

Trade surpluses recorded over 2009, led by a decline in import demand, contributed to an improvement in the current account and added positively to GDP growth. However, as the economic recovery gathers momentum, import demand will begin to increase and unwind these improvements. Indeed, yesterday’s national accounts showed import volumes were surprisingly robust (given the early stage of recovery), led by increase consumption and capital goods. We expect these trends to continue into 2010.