New Zealand's trade accounts sank deeper into the red last month. A deficit of $718 million was recorded as the country pulled in $1.21 of imports for every $1 of exports.
The market had expected a deficit of $450 million.
It pushed the annual deficit to $1.4 billion, up from a deficit of $875 million in the year ended September. The previous two October years recorded trade surpluses.
Exports last month at $3.5 billion were 11 per cent lower than in October last year. Half of the fall can be explained by a 5.5 per cent rise in the trade-weighted exchange rate over that period.
Dairy products accounted for nearly half the decline, down $205 million or 20 per cent on October last year. On a seasonally adjusted basis, dairy exports last month were 15 per cent lower than in September, reflecting lower volumes.
ASB economist Jane Turner said dairy export volumes had fallen sharply over the past three months, returning to more normal levels as the new production season began.
"This follows very strong exports during the middle of this year, as a result of excellent production conditions in the 2011/12 season."
A contraction in meat export volumes - 12 per cent from September in seasonally adjusted terms - also contributed to weaker October exports, although this followed strong growth in meat volumes since May.
"Encouragingly, there are signs that meat export prices may have started to lift over the past two months, after declining through the middle of the year," Turner said.
"The ASB commodity price index shows that meat prices have stabilised, but have yet to show any meaningful pick-up in response to higher feed prices as a result of the US drought." Aluminium and crude oil exports were also down. Monthly export numbers for both commodities can be blown around by the timing of shipments, but over the three months ended October aluminium exports were 32 per cent down on the same period last year and oil exports 24 per cent lower.
Imports at $4.2 billion were up 1.7 per cent on October last year, driven by higher imports of plant and machinery, and of consumer goods.
Bank of New Zealand economist Doug Steel said that fitted with the generally positive confidence figures evident over recent months, despite what clearly looked to have been a soft September quarter.
"So while slower annual economic growth in the second half of the year is the general message here, there is enough in the import figures to suggest that underlying growth has not stalled altogether," he said.
BNZ economists expect the current account deficit, currently 4.9 per cent, to pierce the 6 per cent level next year.
"Part of this view reflects weaker export volumes following the past year's pastoral-driven strength and limited price gains in the face of ongoing strength in the New Zealand dollar. It also reflects some import growth on the back of improving domestic conditions, including what we have already seen in the property market," Steel said.
"We continue to wonder how wide the external deficits have to get before the market takes note."