NZ terms of trade reaches new 40-year high in 4th-qtr as import prices fall

Monday 3rd March 2014

New Zealand's terms of trade rose to a 40-year high for the second straight quarter in the final three months of 2013 as import prices fell more than export prices. On a volume measure, dairy products led exports higher while imports were unchanged.

Terms of trade, which measures the quantity of imports the country can buy with a set amount of exports, gained 2.3 percent in the fourth quarter to the highest level since December 1973, according to Statistics New Zealand. It would need to climb another 3.5 percent to match the all-time high recorded in the June quarter of 1973.

The kiwi dollar recently traded at 83.73 US cents, up from 83.58 cents immediately before the figures were released at 10:45am. The gain in terms of trade exceeded the 2 percent forecast in a Reuters survey.

Export prices fell 0.5 percent, against expectations of a 1 percent gain, while import prices declined 2.8 percent versus a forecast 1 percent decline. That follows an 8.9 percent gain in export prices in the third quarter, led by a surge in milk powder and butter, and gains for forestry and meat.

Dairy export prices fell 1.1 percent in the fourth quarter, the only decline recorded in 2013, while forestry dropped 2.1 percent. Wool prices rose 8.7 percent and meat was up 0.2 percent.

Export volumes rose 9.7 percent, led by a 23 percent gain in dairy products, helping lift the actual value of dairy exports by 27 percent even as prices fell. Meat volumes climbed 5.5 percent, while petroleum products fell 24 percent and forestry volumes were down 0.5 percent. Import volume were unchanged as a 7.8 percent decline for capital goods was offset by a 75 percent jump in petrol and avgas volumes, a 2.1 percent gain for intermediate goods and consumption goods, and a 6.2 percent increase in cars.

The decline in import prices was led by a 3.8 percent drop in mechanical machinery, a 3.7 percent fall for chemicals and a 5.2 percent decline for electrical machinery, with some of the drop attributable to a strong New Zealand dollar, the government statistician said.

"The sky-high terms of trade will provide a key pillar of support to stronger growth in the New Zealand economy this year," said Anne Boniface, senior economist at Westpac Banking Corp.

"While we don't think the terms of trade can continue to head north forever, we do suspect a good chunk of the recent strength in the terms of trade reflects structural changes in the drivers of New Zealand's key exports - in particular, increased demand for New Zealand's commodity exports from China and other emerging economies," she said in a note.

The terms of trade for services such as tourism rose 1.5 percent, with a 0.2 percent gain in services export prices and a 1.3 percent decline for imports.

BusinessDesk.co.nz

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