A trade surplus

May 28th, 2010 at 10:00 am by David Farrar

The Herald reports:

Strong export commodity prices have enabled the country to record its first annual trade surplus for nearly eight years.

Exports exceeded imports by one-sixth or $656 million last month, $200 million more than the market expected.

It pushed the trade balance for the year ended April into the black, by $116 million, the first annual surplus since July 2002, Statistics New Zealand said.

Goldman Sachs JB Were economist Philip Borkin said the most encouraging thing about that was the last time a positive annual trade balance was achieved, the New Zealand dollar was below 50c against the US dollar.

An annual trade surplus is rare indeed. And if we look at a graph of the NZ dollar:

Then we realise how unusual it is to have a surplus when the NZ dollar is so high. Thanks goodness for the global commodity price being high.

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25 Responses to “A trade surplus”

  1. george (388 comments) says:

    Most encouraging is that imports and retail sales are flat. Perhaps people have finally got the message to save and invest a bit of their wages and profits, not spend 112% of their earnings. 18 months of National Government and everything is starting to head in the right direction.

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  2. Redbaiter (13,197 comments) says:

    George- Could you please be so kind as to advise the direct connection between National policies and the trade surplus?

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  3. Manolo (13,780 comments) says:

    “18 months of National Government and everything is starting to head in the right direction.”

    Even an atheist like myself have to say: God help us during the next 18 months.
    More lies from Key, more taxes, more broken promises, more concessions to the racists, more inaction on welfare reform, maybe?

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  4. Pauleastbay (5,035 comments) says:

    Good news, but just as we are starting to maybe see some lght at the tunnels end, we have teachers wanting a 4% wage increase, unions wanting an extra couple of days off.

    Its not the households that keep spending its self interest groups wanting more spending all the time.

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  5. nickb (3,687 comments) says:

    Redbaiter- over on No Minister Adolf is spinning the same line, you could go and ask him… but he doesn’t seem to have many answers.

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  6. george (388 comments) says:

    Redbaiter – Not increasing borrowing as they were advised to do by Labour. Cutting some spending.

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  7. Redbaiter (13,197 comments) says:

    ” Redbaiter- over on No Minister Adolf is spinning the same line, you could go and ask him… but he doesn’t seem to have many answers.”

    I no longer post on or regularly read No Minister. I like and respect Adolf, in spite of his blatant National Party bias ( its OK to be biased) but I have no respect for or trust in others who administer the site. So I don’t know what is being said there. Nevertheless, even taking George’s comment on board, I would suggest that the surplus has far more to do with outside/ global factors than it has to do with anything the Nats have done. The Nats make fools of themselves by suggesting otherwise.

    (I note the original post does not make such a suggestion)

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  8. Owen McShane (1,226 comments) says:

    Thank the cold northern hemisphere winter for keeping the supply of dairy products down and prices up.

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  9. ben (2,380 comments) says:

    Sorry I’m not clear how this is good news for New Zealand. I run a massive trade deficit with my supermarket. Not once ever has it bought something from me. I am enormously enriched by those supermarket imports, though.

    The wealthiest countries run large trade deficits for decades. Why is this good? Because rather than return the favour by buying our goods, those other countries, or rather the individuals in them, are investing in the country. Current account deficit = capital account surplus.

    Now what does capital enrichment of a country do? Well, one of them is that it raises productivity by surrounding workers with more capital.

    The upshot: NZ is in balance even when capital and current account and trade surpluses are not. Tracking one flow but not the others is misleading and dangerous.

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  10. real independent (30 comments) says:

    This is great news and hopefully it’s not a one-off, as it’s the only way this country is truely going to grow and move forward. That it has been achieved with the currency at a high level, is also a good sign and realistically the sooner exporters get used to the idea of doing business with a high currency the better. Long may it continue.

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  11. Adolf Fiinkensein (2,903 comments) says:

    It appears the illiterate neanderthals from the uber right cannot bring their pea brains to contemplate the possibility that most government influences on an economy are INDIRECT. You know, set the scene, set the tone and then get out of the way? Isn’t it funny that when it actually happens, suddenly these paragons of free market virtue want all sorts of intervention.

    Thank God you blokes get your rocks off blogging and will never ever get near any real decision making.

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  12. Gooner (995 comments) says:

    I agree Adolf. The Labour government set the scene and tone with a free trade agreement with China which has mostly caused this surplus as the Chinese are gobbling up our milk powder quicker than it can be produced.

    I would say it is impossible that NACT had anything to do with this as 18 months is not enough time for policy to manifest in results like this.

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  13. Redbaiter (13,197 comments) says:

    ” the possibility that most government influences on an economy are INDIRECT.”

    Adolf, in NZ today, such a statement borders on idiocy. The question here though is what has brought about the change from deficit to surplus. There seems little evidence that government policy, as bludgeoning as it may be in other areas in this Keynesian age, was any kind of significant factor here.

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  14. Manolo (13,780 comments) says:

    “possibility that most government influences on an economy are INDIRECT.”

    Who are you kidding? What could be more direct than hiking taxes and refusing to reduce spending? Ask Bill English, one of your heroes.

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  15. Adolf Fiinkensein (2,903 comments) says:

    Don’t you just love it when they squeal?

    Gooner, go and check out some figures. China’s exports increased by $841mil while Singapore increased by $400mil and the rest of Asia by $116mil.

    But that’s only exports. The real problem was too much debt funded spending on imported goods. Labour’s FTA with China had no influence on that. That’s where I believe the governmental influence has been brought to bear.

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  16. Gooner (995 comments) says:

    Well of course the drop off in consumption could have been a result of a shocking recession, unemployment and no wage growth. Was that all to do with National too?

    I repeat, no government can change trade figures in eighteen months like this.

    From Stuff today:

    Stronger than expected exports, especially of dairy products and logs, helped New Zealand to its first annual trade surplus in almost eight years, at $161 million for the April year.

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  17. RKBee (1,344 comments) says:

    Best news yet..

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  18. backster (2,172 comments) says:

    The important thing now is to ensure that cost overheads for the producers are reduced or at least held…how is a needless ETS scam going to do that.

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  19. side show bob (3,660 comments) says:

    Oh come on, the bloody government has not save our sorry arse butts, once again it’s the farmers.

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  20. RKBee (1,344 comments) says:

    Best news yet.. Fonterra.

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  21. krazykiwi (9,186 comments) says:

    @SSB – So true. Now… back out to the shed and squeeze ‘em teats harder please :)

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  22. Jack5 (5,137 comments) says:

    Its the balance of payments that counts.

    Suddenly pumping the trade balance is another side to the puffery which has seen Brownlee’s absurd forecasts of NZ mineral wealth. The latest to pump this up is a tiny company, that having failed to find significant oil near trhe West Coast’s fabled seeps is now talking wealth from phosphate modules on the seafloor of the Chathams rise.

    Meanwhile for all our sakes, let’s hope dairy products stay high. But let’s not forget that its only eight months since 2000 European dairy farmers dumped production on fields saying production costs were under their market price. With the turmoil in Europe don’t rule out a return to agricultural protectionism in the EU.

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  23. wat dabney (3,769 comments) says:

    A1kmm

    An overall deficit means that we owe others more than they owe us

    No, it doesn’t, because, as has been stated, there is no “overall deficit.” You’re completely ignoring the capital account, which together with the current account constitute the trade balance. The key word is “balance.”

    “[The wealthiest countries run large trade deficits for decades.] Because they are bleeding wealth as other countries develop in the world economy, and collectively living beyond their means.

    No, and again it’s because their current account deficit is offset by their capital account surplus; foreigners from other countries buying into that country and its economy. There is no debt implied by a current account deficit, no “bleeding” of wealth.
    In a diverse world, most dynamic economies will run a capital account surplus (current account deficit.) It is a very enviable situation to be in, since capital formation is the biggest enhancer of productivity and therefore average income.

    “[ben> deficit = capital account surplus.Now what does capital enrichment of a country do? Well, one of them is that it raises productivity by surrounding workers with more capital.] Not when the ‘investment’ is merely to catch a rising property bubble and meet ongoing government costs and fund tax cuts for the rich, which will mainly be spent on wasteful consumption by the wealthy.

    If foreigners are buying into a bubble then more fool them. It’s their loss, whilst we have still got all the goods they sent here in exchange for the the currency they so squandered. And as for government borrowing, well, the fault lies with the government not its creditors.

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  24. eziryder (15 comments) says:

    Aside from who takes any credit, when our net debt (public and private) is north of 150% of GDP it’s risky on a heroic scale to pile up any more. As others have commented, the tragedy is that all those incoming funds have been frigged away on fripperies that add not a jot to our productivity. With the exception of Fonterra, our manufacturing infrastructure mostly consists of worn out junk.
    For myself, whilst I live here for lifestyle and family, I’ll keep most of my stash in oz thanks(oz net debt less than 50% GDP)

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