New Zealand posted a smaller-than-expected trade deficit in October as the nation lifted exports more than expected, led by a surge in shipments of milk powder, butter, cheese and logs.

The trade deficit was $319 million last month, from a revised deficit of $457 million in the previous month, according to Statistics New Zealand.

Imports rose 16 per cent to $4 billion while exports gained 24 per cent to $3.7 billion in the latest month.

A deficit of $438 million has been forecast in a Reuters survey.

Exports were $3.7 billion in October, exceeding the forecast
$3.3 billion, as China bought more milk powder and Australia took in more crude oil from New Zealand.

The Reserve Bank wants to see a rebalancing of the economy toward the tradables sector and away from consumer consumption and housing, and Governor Alan Bollard said this month that was being held back by a high kiwi dollar.

"For the time being, NZ commodity export prices remain at high levels, which should provide support to export incomes over the next year," said ASB economist Jane Turner.

Still, "dairy volume growth may potentially weaken this season due to dry weather, and cap the increase in the annual trade balance."

For the year ended in October, the trade surplus was $1.2 billion, amounting to 2.8 per cent of exports.

The last annual surplus of more than $1 billion was in the 12 months ended September 30, 1994, when it reached $1.3 billion.

Exports to China surged 79 per cent in the latest month, reflecting increased sales of whole milk powder and logs.

Shipments to Australia climbed 15 per cent, on crude oil and dairy products.

Crude oil drove the increase in imports, rising 47 per cent, while processed industrial products such as bitumen, aluminium oxide and palm oil cake rose 12 per cent.

ANZ economist Sharon Zollner said the climb in seasonally adjusted commodity export values in October showed that high commodity prices were supporting the economy.

"However, we may well see some deterioration in both export prices and volumes from here, with GDP growth in many of our key Asian trading partners slowing sharply in Quarter 3, and poor spring conditions not boding well for agricultural export volumes in the next 12 months," she said.