NZ terms of trade fall to 3-year low as strong kiwi slices into dairy returns

Monday 3rd December 2012

New Zealand's terms of trade fell to a three-year low in the September quarter as the country's strong currency ate into returns from an increasing volume of dairy exports.

The terms of trade, which measures how much imports can be bought with a fixed quantity of exports, fell 3.2 percent in the three months ended Sept. 30, according to Statistics New Zealand. That's more than the 1.8 percent forecast in a Reuters survey of economists. Export prices sank 6.3 percent, ahead of the 3.6 percent expected, while import prices declined 3.3 percent versus an anticipated 2 percent fall.

The falling prices came even as export volumes beat expectations, rising 9.7 percent in the quarter, while import volumes advanced 0.7 percent.

Dairy, which accounts for about a quarter of New Zealand's exports, was the biggest contributor to the falling export prices and rising volumes, with volumes surging 32 percent in the quarter, even as prices sank 13 percent.

"Dairy export volumes are at record levels, after adjusting for seasonal effects," prices manager Chris Pike said in a statement. "Dairy values remain at high levels, even though export prices have fallen for five consecutive quarters."

The New Zealand dollar held back export prices, rising 2 percent on a trade-weighted basis in the quarter, Statistics NZ said. The kiwi recently traded at 82.02 US cents and was at 73.41 on a trade-weighted basis.

Today's figures are the latest in a string of official releases showing New Zealand's economic recovery may have slowed in the second half of the year, and come ahead of the Reserve Bank's monetary policy review on Thursday. Governor Graeme Wheeler is expected to keep the official cash rate at 2.5 percent in what is a benign inflation environment.

The terms of trade in the services sector was unchanged in the quarter, with export and import prices both falling 0.7 percent. The fall in export services was driven by lower prices for air transport, while the decline in imports was influenced by cheaper sea transport.

Import prices for petrol and related products shrank 13 percent in the quarter, the sharpest decline across the industries.

BusinessDesk.co.nz

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