NZ: Surprise trade surplus of $85 million for July - ANZ

Con Williams, Agri Economist at ANZ, explains that a trade surplus of $85 million was only the 11th surplus for a July month since 1960 for NZ economy and was the first July surplus since 2012.  

Key Quotes

“There was a strong export performance driven yet again by China, with exports 51% higher than last year. Broader Asian exports were also robust. Dairy led the charge, but there were also strong performances from meat, forestry and horticulture. This reflects the broad-based pick-up in New Zealand primary sector prices since early 2016. Import values remained fairly steady with manufacturers perhaps undertaking some restocking and no let-up in vehicle and associated part imports.”

“Key Points

• The unadjusted trade surplus of $85m was stronger than expectations of a $200m deficit. In seasonally adjusted terms the July surplus of $154m was the strongest result since August 2014 when dairy was booming. The difference now has been a broader-based lift in all major primary sector export values. In annual terms the deficit narrowed to $3.2bn, which is the smallest result this year.
• Export values rose a massive 16.8% y/y. By country China was at the epicentre, with exports up 51% y/y. There was also support from other Asian countries, such as Japan, South Korea, Malaysia, Thailand, Indonesia, Philippines and Vietnam where short-term momentum is generally of the double digit variety. By sector, dairy led the charge (+51% y/y for July), but there were also strong performances from meat (+23% y/y), forestry (+15% y/y) and horticulture (+12% y/y). This reflects the broader-based pick-up in New Zealand primary sector prices since early 2016.
• In contrast, import values rose 5.4% y/y. Intermediate goods imports (+14.5% y/y) remained robust, reflecting a more buoyant global manufacturing backdrop and local construction/infrastructure activity. Recent currency strength is also arguably providing a restocking opportunity. Vehicle and associated part imports remained robust, but imports of capital transportation goods softened. Energy imports were fairly stable. 
• There are a few technicalities to note, but overall we see the data as consistent with our view that net exports should unwind some of their recent drag on GDP growth. Over the past three quarters, the drag has averaged 1.0%pts.”