September trade gap $1b in red

By BRIAN FALLOW

Weak exports combined with strong imports to push the trade balance deep into the red last month.

The trade gap was just over $1 billion for September, the biggest monthly deficit since December 1999 when imports were swollen by the frigate Te Mana.

It was half as bad again as the markets had expected and pushed the annual deficit past $4 billion.

Deutsche Bank economist Darren Gibbs said a strike at the Ports of Auckland might be partly responsible for the weak exports result.

The port company reported yesterday that September export container volumes were down 15 per cent on a year ago and import containers down 9 per cent. The port handles about a third of all exports by value and two-thirds of imports.

Statistics NZ said exports, at $2.15 billion, were 2.3 per cent lower than in September last year. But the dollar had risen nearly 8 per cent in the interval on a trade-weighted basis.

Imports, at $3.17 billion, were up 7.3 per cent on a year ago.

Nearly half of the increase was imports of capital goods, an encouraging sign of higher business investment. Imports of plant and machinery were up 17 per cent on a year ago.

Imports of consumer goods, by contrast, were up only 1.5 per cent.

Despite higher world oil prices, oil imports were only 4 per cent higher than in September last year. Vehicle imports fell 5 per cent.

Bank of New Zealand economist Craig Ebert said the trade figures pointed to the potential for the current account deficit to become a big headache and push the dollar lower.

The BNZ estimates the current account deficit, which reflects not only physical trade but tourism and investment income, measured against the size of the economy, was 5.2 per cent of gross domestic product in the year to September. That would be up from 4.6 per cent for the year to June and 4 per cent a year ago.

"The deteriorating trend is clear and we believe the current account deficit is set to threaten 7 per cent of GDP next year," Ebert said.

What worries the BNZ economists is that the blowout in the trade balance has occurred at a time when New Zealand is enjoying favourable terms of trade - the ratio of export to import prices, or how many tractors can be bought for a container-load of milk power.

"The obvious question is, what is the trade balance going to look like if the terms of trade deflate? The answer is very ugly indeed," said BNZ head of market economics Stephen Toplis.