The latest merchandise trade data were released this past week for August 2023, and compared to the same month a year ago they revealed had some interesting points.
Overall our trade deficit decreased to $2.291 billion in August from $2.634 billion in the same month of the prior year. It was led largely by falls in imports. These fell by -8.1% to $7.28 billion, led by fall in purchase of petroleum and products (-16%); chemical products (-64%) and diagnostic reagents test kits (-90%). On the other hand, imports rose for vehicles, parts, and accessories (+12%); motor vehicles (+37 %); mechanical machinery and equipment (+9.3%) and turbo-jets and turbo-propellers (+109 %).
On a per nation basis imports fell from China (-19%) and Australia (-9.7%), US (-5.4%) and South Korea (-13%) but increased from the EU (+12%). Not surprisingly exports declined by a softer -5.6% to $4.99 billion, driven by fall in sales of meat and edible offal (-15 %); milk powder, butter, and cheese (-3.8%); logs, wood, and wood articles (-17%). Exports fell to China (-18%), Australia (-9%) and Japan (-11%) but rose for the US (+9.6%) and the EU (+7.7%).
Along with the fall in values of the primary products which didn’t help the trade deficit, the reduction in imports especially petroleum products did. In 2022 spikes occurred partly due to more tourism taking place but also due to higher international prices due to Russia’s invasion of Ukraine de-stabilising world markets
The main big import that increased was that for vehicles and associated vehicle parts. This got me thinking about what the future will look like and what impact it will have on our Current Account and perhaps the New Zealand economy. Currently, our not-so-great trade deficit will be helping to keep the NZ$ low although given the number of variables involved it would be difficult to put a figure on this.
One of the things that passed through my thoughts was how will the increasing number of electric vehicles impact upon future trade balances. The table below gleaned from the Motor Industry Association's information shows that EV’s and hybrids are certainly increasing in number and with combustion engine vehicles (as judged by new vehicle sales) decreasing from 75% in 2022 of the total to down to 64% so far this year, and that should mean petroleum sales should decrease .Despite the recent drops, in 2022, the value of petroleum imports grew by +76% on the previous year, largely due to Russia. Petroleum makes up the largest percent of imports with a total value at $9.9 bnl and while vehicles also climbed (up +11%) they still make up less than half that of petroleum (around $4 bln).
New electric cars are certainly considerably more expensive than their combustion counterparts but while fuel is likely to continue to climb at the pumps and possibly also at the boarder, electric cars are expected to decrease in value. This could be driven by increasing numbers of second hand vehicles arriving in New Zealand.
Currently New Zealand is still not fully renewable with electricity production but that is likely to change within the next decade.
Currently 82% of electricity is considered renewable. So, while vehicles imports may still increase over time it is quite possible that petroleum imports will start to decrease, certainly in volume and eventually in cost.
Fortunately, there is still plenty of room to add value to our primary exports so while it may take a decade or so all things considered we should see permanent improvements to our BoP with less (as a percentage) imports and more value from our exports. This should provide a general lift to our general standard of living, although governments will need to whack a considerable road user charge onto EV vehicles, (supposedly starting as soon and April 2024), to keep the tax revenue coming in. But hopefully with less overseas funds going on both petroleum and on the ETS balancing act the country should be better off.
Our Balance of Payments should benefit from a higher NZ$ from the improved economic performance (all else being the same) but, unfortunately this may not benefit primary producers although imported goods such as fertilisers should also be cheaper, relatively. There had to be a downside somewhere, unfortunately.
On the positive side, if this does take a decade or so to come to fruition we should be in a new paradigm and hopefully food production is back with higher status than it currently has and can absorb lower returns than a low NZD might provide. (And if I’m wrong, we all will have forgotten these predictions as well.)
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