nz external imbalances revealed
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7/30/2019 NZ External Imbalances Revealed
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Underlying External Weakness Revealed Exports down 11% y/y
As previous 'grass-driven' volume surge fades
Imports holding up
Indicative of underlying economic growth
But even wider current account deficit ahead
This morning’s merchandise trade data for Octoberconfirmed that the nation’s external accounts are
deteriorating. While the monthly trade deficit of $718mwas a bit bigger than expected on the day, the general
message of deteriorating external accounts has beenone of our core views through 2012. Indeed, we expectfurther deterioration ahead.
October exports were 10.9% lower than a year ago.This is fundamentally a result of lower internationalprices for NZ’s exports, with weakness amplified by arising NZ dollar.
These price effects in the headline export figures throughthe middle of 2012 were somewhat masked by verystrong primary export volume growth, courtesy of theprevious stellar pastoral production season. This export
volume growth has disappeared – witness the 16.9% and11.8% seasonally adjusted falls in dairy and meat exportquantities in October.
Meanwhile, October import values were up 1.7% ona year ago. The increase was driven by capital andconsumption goods, with intermediate goods lowerthan a year ago. There are no import volume estimatesin the monthly trade data. But adjusting import values forexchange rate moves gives a proxy for volume changeswhich, in turn, can be a broad pointer to GDP growth.
These estimates fit with other indicators that suggest thesecond half of 2012 will see slower GDP growth than the
first half. Importantly, there was a hint of a bounce in core
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97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Exports and Commodity Prices
ANZ commodityprice index (NZ$)
Merchandiseexport values
MonthlySource: Statistics NZ, ANZ, BNZ
Annual% change
Large'grass-
driven' volume
growth fading
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-4
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10
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Mar-89 Mar-91 Mar-93 Mar-95 Mar-97 Mar-99 Mar-01 Mar-03 Mar-05 Mar-07 Mar-09 Mar-11
Goods Imports and GDP
Source: Statistics NZ, BNZ
ann % change in 3mTWI-adjusted values
ann %change
Real GDP(rhs)
Goods imports(ex-transport)
Monthly/Quarterly
capital goods imports. This fits with the generally positiveconfidence figures we have witnessed over recentmonths despite what clearly looks to have been a softQ3. So while slower annual economic growth in thesecond half of the year is the general message here,there is enough in the import figures to suggest thatunderlying growth has not stalled altogether.
So for the record we keep our +0.2% and +0.6% picksfor Q3 and Q4 GDP respectively on the board.
Likewise, we maintain our view that the current accountdeficit will widen to 5.5% of GDP in calendar 2012, fromthe 4.9% it reached in the year to June 2012. We seefurther deterioration ahead with the current accountdeficit expected to pierce through 6% during 2013.
Part of this view reflects weaker export volumes followingthe past year’s pastoral driven strength and limited price
gains in the face of ongoing strength in the NZ dollar.The view also reflects some import growth on the backof expected economic growth and improving domesticconditions including what we have already seen in the
property market.
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Mar-89 Mar-91 Mar-93 Mar-95 Mar-97 Mar-99 Mar-01 Mar-03 Mar-05 Mar-07 Mar-09 Mar-11
Capital Imports and GDP
Source: Statistics NZ, BNZ
ann % change in 3mTWI-adjusted values
ann %change
Real GDP (rhs)
Capital goods imports(ex-transport)
Monthly/Quarterly
7/30/2019 NZ External Imbalances Revealed
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25
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95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Annual$ billion
Monthly
Goods Exports and Imports
Exports
Imports
Source: Statistics New Zealand, BNZ
We continue to wonder how wide the external deficitshave to get before the market takes note, likewise therating agencies. The stark contrast between the 11%decline in export values over the past year and the 33%lift in house sales provide a vivid illustration of thecurrent imbalances.
Cue broken record: beware the deteriorating externalaccounts.
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97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Exports and House Sales
House sales
Merchandiseexport values
MonthlySource: Statistics NZ, REINZ, BNZ
Annual% change
7/30/2019 NZ External Imbalances Revealed
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