Trade deficit surges to $5.4b

The trade gap went from bad to worse last month as exporters struggled with a high dollar and consumers spent up large on imports.

Statistics New Zealand said yesterday exports at $2.43 billion were 1.4 per cent down on July last year, while imports at $3 billion were 6.9 per cent higher.

July's $619 million shortfall pushed the annual trade deficit to $5.4 billion, which is $1.1 billion worse than it was only three months ago.

It means that for every $1 of export income we are spending $1.17 on imports, the worst that ratio has been since the mid-1970s.

Imports of consumer goods were 9.5 per cent up on July last year. In part that reflects a kiwi dollar worth 5.6 per cent more than a year ago, making imports cheaper.

Imports of plant and machinery were 1.4 per cent down on a year ago, continuing the trend of the last three months, despite the economy operating close to full capacity and a consequent need for more capital investment by firms.

Imports of oil last month were 11 per cent down on July last year, reflecting the intermittent nature of shipments to the Marsden Point refinery.

Over the three months ended July, however, oil imports were 51 per cent higher in New Zealand dollar terms than the same period last year, testimony to the rising cost of crude.

Also in those three months, exports were down 7 per cent on the same period last year, with all the major commodities lower - dairy products, meat, logs, fruit, fish and aluminium.

In addition to the impact of a higher exchange rate, the fall reflects a recent softening of world prices for export commodities.

ANZ's world commodity price index fell 0.6 per cent last month, on top of a 0.5 per cent fall in June. It is now back to where it was in February and only 4 per cent higher than a year ago.

The current account deficit, which captures earnings from investment and tourism as well as trade, is already over $10 billion or 7 per cent of gross domestic product.

Deutsche Bank chief economist Ulf Schoefisch said that based on the July trade figures and the weak exports trend, he expected the deficit to head towards 7.75 per cent of GDP by the end of the year.

The Bank of New Zealand is even gloomier, predicting the deficit could blow out to more than 8 per cent in coming quarters.

"It could easily get much worse than that before it stabilises," BNZ economist Craig Ebert said.

ANZ National Bank economists, in a note on the data, said a lower dollar would help narrow the trade and current account deficits.

"Yet a lower New Zealand dollar will typically be mirroring international commodity price movements, implying no magic bullet will be forthcoming from exports."