New Zealand's annual trade deficit unexpectedly widened in March as export growth was the weakest in eight months, adding to signs the economy may have stalled in the first quarter.

The shortfall rose to $NZ4.53 billion ($3.78 billion) in the 12 months ended March 31 from $NZ4.42 billion in the year through February, Statistics New Zealand said in Wellington today. The median estimate in a Bloomberg survey of 12 analysts was for a $NZ4.08 billion gap.

Overseas shipments, which make up 30% of the $110 billion economy, rose at a sixth of the pace economists expected amid falling world commodity prices, while a drought forced some farmers to stop milking cows and send livestock to slaughter. Falling farm production and weaker exports may slow the nation's economic growth to a 10-year low in 2008, economists estimate.

"First-quarter economic activity was modest at best, with a risk that it may have contracted,'' said Craig Ebert, senior markets economist at Bank of New Zealand in Wellington. The report "does start to align with all the other indicators, which are telling us that the economy is loosing an awful lot of momentum this year.''

New Zealand's dollar fell to as low as 78.22 US cents from 78.54 cents immediately before the report. It bought 78.37 cents at 11.40am in Wellington trading.

Economic growth may be 1.5% this year, the lowest since 1998, according to the median estimate of 10 economists surveyed by Bloomberg News.

Farm production

Ebert expects the economy expanded just 0.1% in the three months ended March 31. Business confidence tumbled to the weakest level in 17 years and house sales fell to a seven-year low in March.

Earlier this month, the Treasury department forecast farm production would be 1% less this year than in 2007 because of the drought. The Waikato region, which has the highest number of dairy farms in the country, is suffering the most severe drought in 20 years, Treasury said on April 7.

Exports rose just 3.7% from a year earlier to $NZ3.44 billion. That's the slowest annual growth since exports fell in August. Economists forecast a 23% increase.

Sales of milk powder, butter and cheese, which make up almost one-fifth of overseas shipments, jumped 27% to $NZ771 million in March from a year earlier, the agency said.

Oil exports

Exports of petroleum products increased to NZ130 million last month from $NZ31 million a year earlier, following the commencement of production at the Tui field in July. Still, oil exports were an eight-month low, the agency said

Excluding dairy and oil, exports fell 5.2%, the statistics agency said. Meat, log, lumber, seafood and aluminum sales declined.

Prices for commodities that make up 70% of total overseas shipments have been rising at a slower pace. Dairy prices have fallen 5.6% from a peak in November, according to an index compiled by ANZ National Bank.

Imports rose 7.1% to $NZ3.49 billion in March from a year earlier, buoyed by purchases of crude oil and jet fuel, today's report showed. Economists expected a 12% gain.

Reserve Bank of New Zealand Governor Alan Bollard raised the benchmark interest rate four times last year to a record 8.25% to curb consumer spending and inflation.

Higher borrowing costs have cut demand for imported computers and mobile telephones. Imports of consumer goods fell 8.2% in March from a year earlier.

Oil imports soared 82% to a record as prices rose and the quantity purchased jumped 45% from a year earlier, the agency said.

Economists monitor the rolling, 12-month trade balance because of volatility in the month-on-month figures, which aren't seasonally adjusted. In March, there was a $NZ50 million trade deficit compared with a NZ$60 million surplus a year earlier. Economists expected a $NZ395 million surplus.