NZ trade deficit widens in October as demand for imported machinery outstrips primary export growth

ASB Bank rural economist Nathan Penny. Photo / File

New Zealand's monthly trade deficit widened in October as demand for imported mechanical machinery offset gains in the value of the country's export commodities with renewed appetite from Chinese buyers.

The country's trade deficit was $871 million in October compared to $798m a year earlier, Statistics New Zealand said.

The value of imports climbed 15 per cent to $5.43 billion in October, driven by a 33 per cent jump in purchases of mechanical machinery and equipment to $777m, including items such as jet parts and computers. That offset a 16 per cent increase in exports to $4.56b.

"Intermediate goods, used as ingredients or inputs into the production of other goods and services, were the leading contributor to the increase in imports in October," international statistics manager Tehseen Islam said in a statement.

The higher cost of imports coincides with a slump in the kiwi dollar, which makes foreign purchases more expensive, with the trade-weighted index down 2.8 per cent from a year earlier. Policymakers have long complained about the strength in the exchange rate as putting undue pressure on exporters and sapping inflationary stimulus on imported goods.

Today's figures show the exports of milk powder, butter and cheese rose 22 per cent to $1.29b in October from the same month a year earlier, while meat and edible offal exports climbed 20 per cent to $378m, and logs, wood and wood articles exports jumped 27 per cent to $461m. Fruit exports fell 41 per cent to $86m in the month.

The annual trade balance was a deficit of $2.99b, narrowing from a deficit of $3.25b in the October 2016 year, with exports climbing 6.3 per cent to $51.78b and imports rising 5.4 per cent to $54.78b.

ASB Bank rural economist Nathan Penny said in a note that monthly deficit was slightly wider than expected due to a $257m one-off imported item, and excluding that was largely in line with predictions.

"We expect the annual trade deficit to narrow over the remainder of the year, mainly on the back of the improved agricultural export values compared to a year ago," Penny said.

The data show Chinese demand for New Zealand exports continued to climb, with monthly exports up 35 per cent to $1b, for an annual gain of 22 per cent to $11.3b, about 22 per cent of the country's overseas sales. Imports of Chinese goods jumped 11 per cent in the month to $1.04b, for a 3.7 per cent annual gain to $10.68b, or 19 per cent of total imports.

New Zealand's exports to Australia rose 17 per cent in October to $847m and advanced 4.1 per cent to $8.68b for the year, while imports of Australian goods climbed 17 per cent to $659m for an annual increase of 5.8 per cent to $6.84b.