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

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 $798 million a year earlier, Statistics New Zealand said. The value of imports climbed 15 percent to $5.43 billion in October, driven by a 33 percent jump in purchases of mechanical machinery and equipment to $777 million, including items such as jet parts and computers. That offset a 16 percent increase in exports to $4.56 billion.

"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 percent 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 percent to $1.29 billion in October from the same month a year earlier, while meat and edible offal exports climbed 20 percent to $378 million, and logs, wood and wood articles exports jumped 27 percent to $461 million. Fruit exports fell 41 percent to $86 million in the month.

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

ASB Bank rural economist Nathan Penny said in a note that monthly deficit was slightly wider than expected due to a $257 million 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 percent to $1 billion, for an annual gain of 22 percent to $11.3 billion, about 22 percent of the country's overseas sales. Imports of Chinese goods jumped 11 percent in the month to $1.04 billion, for a 3.7 percent annual gain to $10.68 billion, or 19 percent of total imports.

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

(BusinessDesk)