Trade surplus still offsets lost visitor spend

New Zealand’s export performance has been an enduring good news story throughout the COVID-19 pandemic. The trade surplus has risen to a record level, which is providing a welcome net inflow of foreign capital while the borders are closed to tourists. Incredibly, the expansion to the trade surplus during 2020 has more than offset the reduction of foreign visitor spending to date.

Just how big is the trade surplus?

New Zealand’s merchandise exports over the nine months to 30 September totalled $44.6 billion, up 1.0% on the same period in 2019.

This resilience to exports has been led by the agricultural sector, with dairy, meat and horticultural exports leading the way. The good news for New Zealand is that, even during a pandemic, the world still has to eat. Our commodity-based food products come from a safe growing and production environment, which are in high demand across the globe.

At the same time as exports have remained resilient, imports to New Zealand have fallen because of reduced consumerism and lower oil prices. Over the nine months to 30 September, merchandise imports to New Zealand totalled $41.6 billion, down 11.9% on the same period in 2019.

In net terms, the trade surplus over the first three quarters of 2020 was a record $3.0 billion, which is $6.0 billion higher than its 2019 level (a $3.0 billion deficit).

How much have we lost from border closures?

While merchandise goods exports have soared, border closures have created a large hole in earnings for tourism operators and the international education sector.

Statistics New Zealand’s Balance of Payments shows that earnings from inbound business and personal travellers (for both tourism and educational purposes) during the first six months of 2020 were $7.0 billion, with $5.3 billion of this revenue occurring in the March quarter alone before lockdown. By comparison, by June last year earnings from international visitors had totalled $9.0 billion.

A modest level of spend is still occurring due to international students and other visitors who have remained in the country since lockdown. Projecting forward trends using partial spending indicators suggests that total international visitor earnings for the nine months to 30 September 2020 will have climbed to about $8.1 billion. By comparison, over the first nine months of 2019, total earnings were $12.0 billion.

These estimates imply that approximately $3.8 billion less money was spent by international visitor and students during the first nine months of 2020 than a year earlier.

Trade surplus has more than offset lost earnings from visitors

Believe it or not, the lost visitor spend is more than offset by the country’s expanded trade surplus.

Comparing the record trade surplus calculated earlier, against lower earnings from international visitors, shows that in net terms so far in 2020 the country has earnt $2.2 billion more than a year ago.

This result may seem surprising to many and moreover this graph would have looked even better had I included the effects of reduced spending by New Zealanders overseas. With the borders closed, I estimate that spending by New Zealanders overseas over the nine months to 30 September 2020 totalled about $1.9 billion, which is $3.1 billion less than the $5.0 billion spent overseas across the same period a year ago.

Updating the previous chart to include this reduced spend by New Zealanders overseas suggests the net increase in earnings across trade, inbound and outbound travel amounts to $5.3 billion.

Remember there are distributional challenges

Taken at face value, the findings of this article may leave you wondering what we are all concerned about with border closures. After all, I have shown that New Zealand’s record trade surplus and reduced spending by New Zealanders abroad have more than offset what we have lost from fewer international visitors.

But such a conclusion would be naïve to distributional outcomes.

Although in net terms New Zealand appears to be doing okay, the back pockets that money is flowing into have changed significantly. The export gains are mainly accruing to provincial economies, with a strong agricultural sector, as well as towns and cities with a large agricultural service sector. On the other hand, the losses from reduced spending by international tourists and students are more heavily affecting our biggest cities and scenic spots that have not been able to completely plug the gaps with domestic visitation, like Queenstown.

Moreover, the full effects of COVID-19 have not yet been felt in the visitor sector due to seasonality. By the time New Zealand’s borders closed earlier in the year, the peak summer season had already passed and for many tourism operators winter months are quieter anyway.

As we move back into summer this year, the absence of visitors will be keenly felt. In fact, by the March 2021 quarter I estimate that the loss of international visitor spending during the summer could completely offset the gains we have made from the increased trade balance and reduced spending by kiwis abroad. For the visitor sector, all they can do is be lean and agile, as well as hope that the perpetual mirage of a Trans-Tasman Bubble is instead just around the corner.