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New Zealand’s goods trade deficit widened in August, with exports particularly weak in the month, driven by soft dairy volumes. However, with milk production lifting, this is expected to be temporary.
However, the NZD/USD currency pair largely ignored the disappointment in the data, only to gain by 0.28 percent to 0.6666 at the time of writing, after the country’s business confidence rebounded from a decade low during the month of September, albeit firms remaining pessimistic overall.
The unadjusted monthly trade deficit came in wider than expected at NZD1,484 million – the widest monthly deficit on record, driving the annual deficit wider by 300 million to NZD4.8 billion, in contrast to our expectation for a narrowing.
Seasonally adjusted export values fell 4.7 percent m/m, as strength in July’s dairy export values more than fully unwound in August. Dairy values fell 29.3 percent m/m, owing largely to a 27.5 percent drop in volumes.
However, given solid growth in milk production this season (August milk solids production was up 4.6 percent y/y), weakness on the volumes side is expected to be temporary. Forestry values also dragged, down 7.7 percent driven by lower volumes (down 4.3 percent) and lower prices. Meat values slipped 1.3 percent m/m, retaining most of July’s strength .
Seasonally adjusted import values fell less than exports, down 3.4 percent m/m. The volatile petrol component (down 29.2 percent m/m) drove much of the weakness in the month. However, looking through the monthly volatility suggests import demand is waning. While overall imports remain at a high level, weakening capital goods imports suggests business investment is softening.
"Despite recent slippage in world prices for some of our key exports, the annual deficit is expected to narrow over the year ahead as dairy volumes continue to recover on last year and the weaker NZD provides some offset to weaker world export prices and constrains import volumes growth," according to the latest report from ANZ Research.
