Trade surplus for NZ in June as dairy, steel prove strong, but China doldrums a long-term challenge

Iron and steel products were hot exports last month, up significantly from a year earlier. Photo / Glenn Jeffrey

Strong steel and dairy product exports helped drive a trade surplus for New Zealand last month.

But the surplus was down from May’s and economists say exporters face a long-term challenge from lackadaisical demand in China.

New data from Stats NZ showed goods exports in June were up $84 million, or 1.3 per cent on a year earlier.

Combined exports and imports last month totalled about $6.3 billion, with a surplus of $8.8m.

Milk powder, butter, and cheese exports were up significantly on June 2022. The value of that export group shot up by $170 million (11 per cent) and made up $1.8b, or 28.6 per cent of all exports.

Iron and steel exports were up $54m, or 89 per cent.

ANZ chief economist Sharon Zollner said monthly data was volatile, but three major trends were of importance.

Stagnation in China and the potential bursting of a property bubble in that country were making consumers pessimistic and parsimonious.

Zollner said dairy products were not staples in China and were vulnerable to being seen as discretionary or even luxury items there.

“Chinese consumers are pulling back on their discretionary spending. Their unemployment is rising. That’s making people very cautious.”

Shanghai, home of China's busiest port. The country is experiencing deflation and has a troubled property sector. Photo / Wangwukong, Stone RF, Getty Images

A relatively weak kiwi dollar was not proving enough to offset lower returns in New Zealand for dairy commodities, ANZ said earlier this month.

Chinese property prices were falling and the country’s economy grew 0.8 per cent in the second quarter - a high number for most developed countries but low by China’s standards.

“It’s a bit of a bubble and it’s popping,” Zollner said of the Chinese property market.

She said the days of double-digit annual GDP growth were unsustainable.

China, when adopting a market economy, had invested in better infrastructure and enjoyed rapid returns and huge growth.

“The reforms have been more geared towards distributing the spoils of growth more fairly, rather than maximising the growth,” Zollner said.

But China was still playing catch-up to many Western countries in per capita income terms.

“For each subsequent country, it gets harder and harder in a world of finite resources.”

But she said despite that, China still offered vast opportunities for Kiwi exporters.

“It’s growing more slowly. It’s not going backwards,” she said of the giant economy.

Zollner said outside of China, high inflation was another reason the outlook for Kiwi exporters in the next few months was not rosy.

“In the developed world, you’ve got central banks doing everything they can to reduce demand.”

Although China had deflation, many countries had rampant inflation.

Central banks were combating rising prices by raising official cash rates to temper spending splurges and encourage saving.

Zollner said a third factor was a “toothless” World Trade Organisation not doing enough to curb abuses in international trade or advance free trade.

The New Zealand-EU free trade deal was formalised a fortnight ago but many commentators had ongoing concerns about protectionism.

“We’re still seeing year-on-year growth in our exports but the growth is slowing,” Westpac senior economist Darren Gibbs said.

And he said today’s Stats NZ release had another important piece of data.

“Today is the first time we’ve seen a year-on-year decline in consumer imports.”

That could be due to falling freight costs, but more pessimistic Kiwi consumers could also be a factor.

Freightos, a global shipping booking platform, said ocean freight prices had fallen since autumn 2022.

“A big driver in falling logistics costs is a drop in consumer spending, which had been responsible for increased sales among many importers over the last two years,” Freightos added.

Gibbs said exporters would have to keep watching China closely.

“One of the problems in China is excess capacity.”

In other words, there’d been plenty of supply but not enough demand, so deflation was impacting China.

Today’s trade data showed exports to China in June were down $124m or 7.2 per cent from a year earlier.

But exports were up significantly to the US and Australia.

“Both economies seem to be trucking along. The labour market in both countries seems to be pretty resilient,” he said of Australia and the US.

But a tight labour market persisted in both those countries.

“Certainly for the next 12 months it’s hard to think of any good reason why those economies would accelerate,” Gibbs added.

He also said inflation was proving tough to curb in many countries.

“Most economies are holding up pretty well, in fact probably too well for the liking of the central banks,” Gibbs added.

Stats NZ said goods imports were down $1.1b or 14 per cent compared with June last year.

The bogeyman last winter was the high price of fuel.

Stats NZ said petrol and diesel became costlier after the Marsden Point refinery stopped refining crude oil in April 2022.

Petrol and diesel imports were down year-on-year but more jet fuel was imported last month than in June 2022, when Covid-related border restrictions were still widespread.

John Weekes is online business editor. He has covered politics, crime, courts and consumer affairs. He rejoined the Herald in 2020, previously working at Stuff and News Regional, Australia.