FYI | Sep 27 2006
By Chris Shaw
While a surprising increase in August caught the market unawares as consensus was for a figure more in line with the previous month, both Macquarie and GSJB Were have maintained their view the New Zealand trade deficit is continuing to improve.
Both brokers had expected a result significantly lower than the actual outcome of NZ$961m, which was far higher than July’s $703m deficit. Despite the result, Weres continues to forecast a fall in the deficit from its current level of around 9.6% of GDP to 7.25% by the end of 2008.
The broker notes August showed imports were continuing to slow, which it suggests is consistent with a slowing in the domestic economy. It also views as positive the ongoing recovery in the external sector, though it was slightly concerned August showed a weaker than expected export performance.
Macquarie was not as worried about exports though, noting while growth in year-on-year terms has slowed to 15.4% from 24.2% previously this remains favourable compared to imports, which in the same period have slowed to 6.4% from 21.8%.
It expects the relatively weak domestic recovery will keep a lid on imports in coming months, while it expects weakness in the currency to provide a boost for exports. Weres is a little more concerned about the currency, as it suggests there is still the chance recent strength in the Kiwi dollar will impact on the level of exports being achieved. If such an outcome were to occur it would bring into question its expectation for a soft landing for the New Zealand economy, a view it maintains despite this month’s worse than expected outcome.