Trade deficit balloons to $7.5 billion in ‘extra volatile’ September quarter

We're spending a lot more on imports, even though in some cases we're importing less, and a big inflation gremlin is to blame. Photo / Alan Gibson

The trade deficit expanded in the September quarter when a big tourism boost was nowhere near enough to make up for surging import values.

High inflation worldwide was causing mischief with New Zealand’s terms of trade, an economist said.

Stats NZ said the September quarter deficit reached $7.5 billion, up from $7.1b in the June quarter.

ANZ senior economist Miles Workman told the Herald relatively high global inflation abroad was having an impact.

“High inflation tends also to be volatile inflation.”

He said Kiwi commodity producers and exporters were at the frontline of “extra volatility” in this arena.

“There are these cyclical forces which are starting to kick in. It’s a big risk to our outlook if we saw a sharper global downturn”.

China, Australia and the United States, in that order, were New Zealand’s top partners for both exports and imports.

Some recent US data was more positive than many analysts anticipated.

A US index measuring inflation for suppliers rose just 0.2 per cent in October, much lower than market pundits expected.

But Workman said concerns remained about China, where Covid-zero policies stifled growth and sparked protests.

Reuters on Thursday reported that Chinese authorities seemed to be easing Covid rules in some places, including the huge port city of Guangzhou in southern China.

Workman said that could help Kiwi exporters, if more relaxed Covid rules boosted China’s hospitality sector where New Zealand food was consumed.

“New Zealand shouldn’t have a problem finding a buyer of our food products. It’s just a question of what price will be achieved,” Workman said.

He added: “From a medium-term perspective, New Zealand is still well-placed as a food exporter or a net food exporter.”

ANZ senior economist Miles Workman says it's important to look at import volumes as well as values when trying to detect trends in the economy. Photo / Supplied

Workman said climate change and other factors presented ongoing supply challenges to food supply around the world.

Imports fuelling big spend-up

“Imported fuel prices are certainly a big component of a recent trend we’ve seen in prices,” Workman said.

“I’m less interested in the prices story and more interested in the volumes story - how many consumer goods we’re importing,” he added.

“It’s probably too early to call it a trend but the volume of imported consumer goods was down about 5 per cent quarter-on-quarter.”

He said higher interest rates could suppress domestic demand, sparking a fall in imported consumer goods volumes.

Reserve Bank Governor Adrian Orr. Photo / Mark Mitchell, Herald montage

Data released on Friday morning showed goods exports fell by $400 million to $17.5b quarter-on-quarter.

Total exports fell almost a billion dollars compared to the previous quarter to $22.2b.

But goods and services imports jumped up more than $4b to $29.7b in the September quarter.

Top exports

Dairy products were still by far the most valuable exports, despite falling 9 per cent from the previous quarter to $4.46b.

But the value of reopened borders has become apparent - as travel contributed $1.81b, up from $1.3b in the June quarter.

Tourism was the country’s third-biggest foreign exchange earner in the September quarter, up from fifth place in June.

Tourism-related expenditure data comes from the International Visitor Survey (IVS) which resumed in July 2022 after a break of two years.

The value of the second-biggest export category, meat and edible offal, declined quarter-on-quarter from $2.77b to 2.26b.

Mineral fuels and oils were the biggest imports at $2.9b, well up from third-place and $2.08b in the June quarter.

New Zealand also spent more on imported mechanical machinery, vehicles, transportation and electrical machinery.

A year after Delta

Total services exports rose $1.4b to $4.7b in the September 2022 quarter compared with a year earlier.

Back then, the Delta Covid variant was in New Zealand and Auckland was in lockdown.

Travel services year-on-year more than doubled, from $845m to $1.81b, according to Stats NZ.

All other major services export types were up from a year earlier.

Total services imports rose $1.9b to $7b in the September 2022 quarter.

Total goods and services imports a year ago were only $17.7b.

Export values have not surpassed import values since June 2021.