Trade balance heads back into deficit

Despite dampened consumer demand all over the world, and transport logjams at major ports, New Zealand exports have held up well. In the year to July 2020, goods exports fell marginally by 0.2 percent. Exports were buoyed by medical equipment and food, particularly kiwifruit. On the flip side, subdued domestic demand and disruptions to factory production meant that imports fell sharply by 18 percent during the same period. As a result, the trade balance was in surplus for the first time for a July year since 2014.

However, the surplus did not persist and the trade balance reverted back to the pre-pandemic norm of being in deficit as restrictions eased. In the year to July 2021, the trade balance was $1.1 billion in deficit. While annual goods exports rose by 1.4 percent, the increase in imports outstripped this, growing by 3.3 percent during the year.

In peak lockdown period of 2020, the household savings ratio skyrocketed to new highs, reaching 14.7 percent in the June quarter of that year. This was quite an anomaly for New Zealand households, which historically have near zero, or even negative savings.

There was an enormous amount of pent-up consumer demand from the lockdown period. But, as restrictions on the movement of people and goods were relaxed, consumer appetite for spending accelerated. In March 2021, household savings plummeted even below pre-pandemic levels. Households were now saving just 0.4 percent of their disposable incomes.

Businesses also lifted shutters and demand for raw materials and production inputs was restored. Mechanical machinery and equipment (25 percent) and petroleum and products (233 percent) imports surged during the July 2021 year. During the pandemic, the value of forestry products, fish, dairy, and meat exports fell. Forestry export receipts in particular plunged by 21.1 percent during the June 2020 year. As our major trade partners relaxed restrictions and global consumer demand began rebounding, export receipts from these commodities have been trending upwards.

After a lull in imports during 2020, their value in the July 2021 month reached an unprecedented high of $1.6 billion. Sixty percent of this increase was attributable to vehicle and petroleum purchases. Demand for vehicle imports dried up last year as lockdown measures came into effect and non-essential businesses, such as car yards, shuttered. Moreover, the restrictions on movement also meant that people were purchasing fewer vehicles and fuel.

True to form, Kiwi consumers splurged on motor cars as the country went into recovery mode. Domestic demand for foreign cars skyrocketed in the July 2021 month, with imports experiencing a 152 percent increase compared to July last year. Unsurprising for a nation with the fourth-highest rate of car ownership per capita in the world. Japan remained the top trading partner for motor vehicles, and the value of Japanese car imports went up by 54.7 percent compared to July 2020.

Despite the bleak expectations for trade at the beginning of the pandemic, New Zealand exports remained resilient and imports are bouncing back, underpinned by strong domestic demand for durable goods. However, as the latest outbreaks of COVID-19 in New Zealand and abroad have shown, the path to full recovery remains rocky and pinned to vaccination rates.