Monthly trade surplus in May, led by demand for dairy products

Felix Delbruck, senior economist at Westpac Banking Corp

New Zealand posted its seventh monthly trade surplus in May, led by overseas demand for the nation's primary products such as milk powder, butter and cheese.

The country had a trade surplus of $285 million in May, from $498 million in April and $40 million a year earlier, Statistics New Zealand said. The annual trade balance turned to a surplus of $1.37 billion from a deficit of $901 million a year earlier. The trade figures lagged expectations for a monthly surplus of $300 million and an annual surplus of $1.43 billion in a Reuters poll of economists. (See graph below)

Demand for primary products from an expanding and wealthier Chinese economy has spurred demand for New Zealand exports. China held its position as New Zealand's top trading partner, with annual two-way trade between the nations exceeding $20 billion for the first time, ahead of the government's 2015 target.

Exports rose 13 percent to $4.6 billion in May from the year earlier month, led by dairy exports to China. The statistics agency said it appeared the growth in exports seen in the past year has levelled off. Expanding global milk supply and a drop in buying by Chinese importers as they run down inventories has weighed on dairy prices this year.

"Lower dairy prices are now starting to come through in the trade data," Westpac Banking Corp senior economist Felix Delbruck said in a note. "We expect further price falls to come through in the June trade figures."

Imports increased 7 percent to $4.3 billion In May from the year earlier month, led by imports of trucks and machinery including cranes and excavators.

The New Zealand dollar initially spiked higher following the trade data, touching a fresh three-year high of 87.94 US cents, from 87.76 cents immediately before the 10:45am release. It then retraced, recently trading at 87.78 cents.


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