NZ records merchandise trade surplus of NZ$129 million in July, first July surplus since 1991, above expectations for NZ$100 million deficit

New Zealand recorded a merchandise trade surplus of NZ$129 million in July, above market expectations for a NZ$100 million deficit as the value of exports during the month was greater than imports for the first time since 1991.

Figures released by Statistics New Zealand today showed the surplus as a percentage of exports was 3.5%, compared to an average July deficit of 18% of exports over the previous five years.

"The value of goods exported in July 2011 increased NZ$166 million compared with July 2010, to reach NZ$3.7 billion. The increase was led by milk powder, butter, and cheese exports, and crude oil," Stats NZ said in a release.

"The value of goods imported in July 2011 decreased NZ$149 million compared with July 2010, to NZ$3.6 billion, led by a fall in petroleum and products. Regular petrol and automotive diesel were down, and crude oil import quantities, which tend to be irregular, were significantly lower in July 2011," it said.

"The trend in the value of exports has increased 30 percent since its most recent low point in October 2009, and continues to reach new highs. The trend for import values is up 20 percent since the most recent low point in September 2009, but is still 9.9 percent below its overall peak in September 2008."

Economist reaction

Here's the reaction from ASB economist Jane Turner:

The trade balance was stronger than expected, posting a seasonally-adjusted surplus of $338 million in July, up from $160 million in June.  The stronger result was largely due to surprising weakness in imports.  In particular, oil imports posted a surprisingly sharp decline.  Oil imports tend to be volatile and lumpy, and as a result are likely to bounce back in coming months.

Exports

Exports held up well, growing 2.4% over the month (seasonally adjusted). Underpinning the increase over July was stronger exports of oil, aluminum and manufactured goods.

Dairy exports eased back slightly, but prices held up better than expected.  Much to the 3.7% decline over the month was due to lower volumes.  In contrast, we were expecting a decline in prices to drive exports lower.  Given prices have fallen on spot markets, this is likely to flow through to lower export receipts in coming months.

Meat exports declined sharply due to lower prices and lower volumes.  In particular, lamb slaughter has been constrained by depleted stock levels over the past few years. 

Forestry volumes have been lumpy over the past few months.  Anecdotes of excess inventories and weaker demand from China around the middle of the year appear to have fed through to lower prices. More recently, demand has picked up as reports indicate inventory levels have become run down. However, uncertainty around the global trade outlook may weigh on forestry demand.

Imports

Imports were surprisingly weak over the month, although abnormally low oil imports appear to account for much of this.  Excluding oil and one-offs, seasonally-adjusted imports declined just 0.6%.  Much of the weakness appears to be in intermediate goods, and may reflect the softening in global commodity prices.  In particular, Stats NZ noted falls in imports of fertiliser and sugar.  Beyond these commodities, the high NZD is also likely to be contributing to lower prices and import values, particularly for consumer and capital goods.

Implications

The July trade surplus was surprisingly strong, although it appears to be due to temporary weakness in oil imports.  Exports have held up well to date, with commodity and manufacturing exports both continuing to perform well over the past year.  Over the coming months, exports may decline largely reflecting the easing in dairy prices. Nonetheless, the overall level of dairy prices remains supportive despite declines on spot markets.   

Recent instability in global markets and the weaker run of US economic data has raised some concerns for the global growth outlook.  However, New Zealand’s export performance largely depends on economic growth in emerging Asia andAustralia.  The outlook in these economies remains robust.  However, there is some uncertainty about the flow-on impact from slower growth in US andEurope.  Given the large number of uncertainties around the global situation, we continue to expect the RBNZ will hold off increasing the OCR until December this year.

(Updates with ASB reaction)