21 Jul 2022

Fuel prices hit economy, impact annual trade deficit

5:03 pm on 21 July 2022

The economy has posted a record annual trade deficit on the back of surging fuel prices.

Close up of hand using tablet with financial digits and downward red arrow on blurry background, illustrating economic decline.

Photo: 123rf

Stats NZ data showed a deficit of $10.5 billion between export earnings and import costs for the year ended June, the highest annual deficit since current records began in 1960.

For the month of June the deficit was $701 million, a record for any June month, as growth in imports, notably refined fuel, outstripped the gain in exports.

"Since the recent closure of the Marsden Point refinery, more refined petrol and diesel are being imported," Stats NZ manager Alasdair Allen said.

"The value-adding, which occurs offshore prior to arriving in New Zealand, contributes to the increases in the total import value."

Petroleum and products imports rose $795m (206 percent) to $1.2b in June on the same month a year ago after the closure of the refinery.

The rise in volumes and prices reflected the rebound from last year's Covid-19 restrictions which had dampened demand, as well the rise in global prices.

Stats NZ said the average value for each unit of imported fuel rose 133 percent for diesel and 125 percent for petrol.

Rises in the import of machinery and equipment also drove up the monthly import bill of $7.1b, up 25 percent on a year ago.

Meat and dairy continued to dominate exports, which lifted 7.7 percent to $6.4b.

Economists RNZ spoke to were divided about whether the deficit would widen in the coming months.

Westpac senior agri economist Nathan Penny said he thought it would not because oil prices appeared to have peaked in June.

Brent crude oil got as high as US$124 a barrel in last month before dipping below US$100, as fears of a global recession outweighed scarcity concerns brought on by Russia's invasion of Ukraine.

It was trading at US$103.86 per barrel at the time of writing.

"The other thing that was impacting the June numbers was a widening of refining margins, they had blown out over that period [but] they have come back closer to normal."

Penny said falling fuel prices, combined with the ongoing demand for our key exports, should result in the deficit narrowing.

ANZ agri economist Susan Kilsby thought the deficit could widen further.

"Food export prices have topped out and we have certainly seing dairy prices coming back and volumes are also a little bit constrained as well."

Global dairy prices fell to a nine month low in the latest global dairy auction this week, with the average price down 5 percent to US$4166 per tonne.

Kilsby said she was also not seeing much relief in terms of energy commodity prices at this point, which would continue to drive up the cost of New Zealand's imports.