The most favourable terms of trade for 40 years and a $3.1 billion rise in exports to China were not enough to close the trade gap last year.

Imports exceeded exports by $259 million or 0.5 per cent in 2013, Statistics New Zealand reported yesterday. But that was an improvement from a trade deficit of $1.2 billion, or 2.5 per cent of exports, in 2012.

Exports rose $2 billion or 4.4 per cent to $47.5 billion last year despite a 5 per cent rise in the trade-weighted exchange rate.

The improvement was dominated by a $3.1 billion or 45 per cent increase in exports to China, which more than offset declines in exports to the next three largest markets: Australia (down 8 per cent), the United States (down 4 per cent) and Japan (down 11 per cent).


Exports of dairy products rose by $2 billion to $13.4 billion or 28 per cent of all goods exports.

Imports grew more slowly than exports last year, 2.4 per cent. That included a 5.2 per cent increase in imports of plant and machinery, 12.9 per cent rise in car imports and a 1.3 per cent lift in consumer goods imports.

Deutsche Bank chief economist Darren Gibbs said dairy export revenues were likely to surge over coming months and he expected the annual trade balance to move well into surplus by mid-year.

"This should mean that the overall current account deficit temporarily halves from the 4 per cent of GDP level reported for the year to September 2013. From there we would expect to see the deficit expand gradually as dairy prices eventually recede somewhat from their current exceptionally high levels and as import volumes continue to expand," Gibbs said.

ASB economist Nathan Penny said a milk price payout of $8.30 per kilogram of milksolids, up from $5.84 in the previous season, combined with about a 10 per cent increase in production would lift dairy farmers' incomes by something approaching $5 billion this season.

"The strong dairy exports should see the trade balance tick back into surplus for the first time since early 2012. At the same time, the domestic economy will continue to heat up. Imports, while a step behind, should start to catch up, reining in the surplus towards the end of the year," he said.

"For the Reserve Bank, persistently high dairy prices and a better production season are a surprise at the margin. This is another reason why the bank will move soon to start lifting interest rates from the current lows."