NZ External Imbalances Revealed

7/30/2019 NZ External Imbalances Revealed

http://slidepdf.com/reader/full/nz-external-imbalances-revealed 1/3

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

-30

-20

-10

0

10

20

30

40

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

-10

-8

-6

-4

-2

0

2

4

6

8

10

-40

-30

-20

-10

0

10

20

30

40

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.

-10

-8

-6

-4

-2

0

2

4

6

8

10

-50

-40

-30

-20

-10

0

10

20

30

40

50

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



20

25

30

35

40

45

50

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.

-60

-40

-20

0

20

40

60

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

[email protected]



BNZ Research

Stephen ToplisHead of Research

+(64 4) 474 6905 Craig EbertSenior Economist

+(64 4) 474 6799 Doug Steel Economist

+(64 4) 474 6923 Mike JonesStrategist

+(64 4) 924 7652 Kymberly MartinStrategist

+(64 4) 924 7654

Main Offices

Wellington

60 Waterloo Quay

Private Bag 39806

Wellington Mail Centre

Lower Hutt 5045

New ZealandPhone: +(64 4) 473 3791

FI: 0800 283 269

Fax: +(64 4) 474 6266

Auckland

80 Queen Street

Private Bag 92208

Auckland 1142

New Zealand

Phone: +(64 9) 976 5762Toll Free: 0800 081 167

Christchurch

81 Riccarton Road

PO Box 1461

Christchurch 8022

New Zealand

Phone: +(64 3) 353 2219Toll Free: 0800 854 854

National Australia Bank

Peter JollyHead of Research

+(61 2) 9237 1406 Alan OsterGroup Chief Economist

+(61 3) 8634 2927 Rob Henderson Chief Economist, Markets

+(61 2) 9237 1836 Emma LawsonCurrency Strategist

+(61 2) 9237 8154

Wellington Foreign Exchange +800 642 222

Fixed Income/Derivatives +800 283 269 New YorkForeign Exchange +1 212 916 9631

Fixed Income/Derivatives +1 212 916 9677

Sydney

Foreign Exchange +(61 2) 9295 1100

Fixed Income/Derivatives +(61 2) 9295 1166

Hong Kong


Fixed Income/Derivatives +(85 2) 2526 5891

London


Fixed Income/Derivatives +(44 20) 7796 4761 24 HOUR FOREIGN EXCHANGE SERVICE

Phone Toll Free 6am to 8pm NZT – Wellington Office 0800 739 707 8pm to 6am NZT – London Office – Alasdair Smith

Contact Details

ANALYST DISCLAIMER: The person or persons named as the author(s) of this report hereby certify that the views expressed in the research report accurately reflect their personal views about the subjectsecurities and issuers and other subject matters discussed. No part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the research

report. Research analysts responsible for this report receive compensation based upon, among other factors, the overall profitability of the Markets Division of National Australia Bank Limited, a member ofthe National Australia Bank Group ( “NAB”). The views of the author(s) do not necessarily reflect the views of NAB and are subject to change without notice. NAB may receive fees for banking servicesprovided to an issuer of securities mentioned in this report. NAB, its affiliates and their respective officers, and employee s, including persons involved in the preparation or issuance of this report (subject tothe policies of NAB), may also from time to time maintain a long or short position in, or purchase or sell a position in, hold or act as advisors, brokers or commercial bankers in relation to the securities ( orrelated securities and financial instruments), of companies mentioned in this report. NAB or its affiliates may engage in these transactions in a manner that is inconsistent with or contrary to anyrecommendations made in this report.

NEW ZEALAND DISCLAIMER: This publication has been provided for general information only. Although every effort has been made to ensure this publication is accurate the contents should not be reliedupon or used as a basis for en tering into any products described in this publication. Bank of New Zealand strongly r ecommends readers seek independent legal/financial advice prior to acting in relation to anof the matters discussed in this publication. Neither Bank of New Zealand nor any person involved in this publication accepts any liability for any loss or damage whatsoever may directly or indirectly resultfrom any advice, opinion, information, representation or omission, whether negligent or otherwise, contained in this publication.

US DISCLAIMER: If this document is distributed i n the United States, such distribution is by nabSecurities, LLC. This document is not intended as an offer or solicitation for the purchase or sale of anysecurities, financial instrument or product or to provide financial services. It is not the intention of nabSecurities to create legal relations on the basis of information provided herein.

National Australia Bank Limited is not a registered bank in New Zealand.

Documents

NZ External Imbalances Revealed