Trade balance tips further into the red

A drop in returns for dairy products and a rise in capital imports helped push the October trade balance further into deficit.

The latest monthly trade figures show a deficit for October of $718 million, well above the average market forecast deficit of $450 million.

October is, becauce of the seasonal nature of New Zealand's external sector, usually in deficit, but the latest figures are worse than usual. 

The deficit adds up to 21% of exports, whereas the average deficit over the past five Octobers was 16% of exports.

The bulk of the fall is a $205 million drop in returns for dairy products.

The decrease is not because of lesser quantities being exported: the volume actually rose 5.9% for the month, indicating the drop in returns is from a combination of the high New Zealand currency and lower prices.

On the import side of the ledger, the main rise is in capital goods, imports of which are up $94 million. The bulk of this is a $80 million increase in imports of plant and machinery.

Imports of consumption goods also rose, by $64 million, with this dominated by "lumpy" consumer durable goods.

Both those increases suggest New Zealand firms are using the high currency to stock up on cheaper imports.

Overall, exports totalled $3.5 billion for the month and imports $4.2 billion. 

On an annual basis, the country's trade deficit is $1.4 billion for the 12 months to October.

This is better than usual for the October year, which over the past five years has produced a 12-monthly deficit of 5.5% of the value of exports compared to 3% this year.

The recent trend is less encouraging.

Exports have fallen 6.3% from their peak in November last year and imports have dropped 7.0% from their peak in September 2008.

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4 Comments & Questions

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The high dollar is gutting the economy ... banks are happy and fat (shipping high dollars offshore) so economists will say NZers should be glad for that.

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Most economists that you hear of aren't independent and generally work for the bank, which speaks for itself.

The independent economists who provide a more objective analysis are generally rubbished by vested interests – and they run thick.

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Imports will increase rapidly, as they did before the last recession. Exports will not increase as fast and the deficit will widen significantly.

People now feel richer on the back of the huge house price increases and will be able to buy more imports just by increasing their mortgages.

It is a case of New Zealand burning while John Key and his merry men fiddle. For the sake of the economy in the future, this house buying frenzy must be stopped!

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I agree, we have to get out from under this fixation on property and start building wealth by creating and selling export focused products.

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