Hearty trade surplus masks falling exports

AT $1.4 billion, the annual trade surplus is at a 20-year high, but the export boom is not expected to last, with dairy exports passing their peak, and meat and log exports on the way down too.

In Statistics NZ figures out yesterday, New Zealand posted a better-than-expected trade surplus of $285 million in May, despite the high currency.

The figures show two-way trade with China reached $20b a year for the first time, with sales to China a key factor in the big lift in exports in the past year.

But the figures also showed up falling prices for dairy products and a big drop in log volumes, two of our top-three export sectors.

‘‘Lower dairy prices are now starting to come through in the trade data,’’ Westpac economists said, with further falls expected in the June trade figures.

In May, exports were worth $4.6b, up on April by a seasonally adjusted 0.5 per cent, and up on the same month a year ago by more than $500m. But Statistics NZ said ‘‘it appears the growth in exports seen in the past year has levelled off’’.

Global dairy auction prices have slumped about 25 per cent since a peak at the start of the year. So dairy exports were likely to be near their peak and ‘‘moder-

ASB economists ate’’ in the year’s second half, Infometrics economists said. It takes about three months for auction prices to show up in the figures.

As well, log export prices have fallen about 20 per cent in the past couple of months, with a glut of logs sitting on wharves in China and fears of large job cuts in the forestry sector in New Zealand.

The seasonally adjusted export values of milk powder, butter and cheese rose 0.4 per cent in May, but only because volumes were up almost 8 per cent.

A roughly 7 per cent seasonally adjusted drop in dairy prices, Westpac estimated, was offset by a similar jump in volumes.

Meat export values in May were down almost 7 per cent, repeating a similar drop in April. Most of the value drop reflected a fall in volumes in May.

However, the continued growth of exports to China has resulted in the two-way trade of goods reaching an unprecedented $20.1b. This was up $4.7b from the previous year, with exports contributing $4.0 billion to this increase.

Imports in May were worth $4.3b, up 2.9 per cent on April. Imports of capital goods like trucks, cranes and diggers have been rising in the past year.

But households are keeping a tight fist around their wallets. Imports of consumer goods were up just 3 per cent from a year ago.

ASB economists said ‘‘continued restraint’’ would be a key factor in how much interest rates went up in the next couple of years. They expected rate rises to rein in household spending faster than the Reserve Bank and markets might expect.