NZ trade balance breakdown - ANZ

Philip Borkin, Senior Economist at ANZ broke down the NZ trade balance as follows:

"At $433 million, the headline (unadjusted) monthly trade deficit was modestly larger than expected in July (mkt: $325m). However, a one- off import (valued at $258m) boosted import values (no details were provided on what this import was). Stripping this out, the trade deficit was $175m in the month. In seasonally adjusted terms, the trade deficit widened to $218m, and while this is the widest deficit since March, it is well within the ball-park of recent monthly results. In fact, in underlying trend terms, the picture still looks reasonable. The Statistics NZ trend measure narrowed to a $33 million deficit, which is the smallest since September 2014.

Seasonally adjusted export values rose 2.2% m/m in July. At the component level (where movements are volatile), dairy exports lifted 0.6% m/m, and together with stronger mechanical machinery (where a one-off also contributed) and aluminium exports, this offset falls in fruit, meat and forestry exports. The 16% m/m seasonally adjusted drop in fruit exports does seem a little alarming at face value, although it comes after some strong growth, with the volume of fruit exports still up 5% y/y.

Seasonally adjusted import values rose 5.6% m/m, which follows two falls. Excluding petroleum products, import values actually rose 6.3% m/m, with the large one-off import clearly contributing. In trend terms, import values have actually been easing of late, with a run-rate of -0.3% m/m.

To assess the broad direction of the trade accounts from here, a number of moving parts need to be considered, including the weather, export commodity prices, the NZD, inventories, import prices (especially oil) and global growth. When all is said and done, we still believe the trade balance will deteriorate modestly over the next year or so. But with export prices stabilising (and some rising) and oil prices expected to remain in a broad $40-$50/bbl range, that deterioration now looks set to be far smaller than seemed likely a few months ago. The terms of trade (OTI basis) is only 6% off its highs, and while we expect Q2 figures to show a decent fall, the terms of trade is arguably close to troughing. This is a remarkable story considering the earlier weakness in dairy prices."