NZ terms of trade rise 1.5% in first quarter as imported petrol prices slump

Tuesday 2nd June 2015

New Zealand's terms of trade rose in the first three months of the year, snapping two quarters of decline, as a slump in the price of imported petrol offset weaker prices for dairy exports.

The terms of trade rose 1.5 percent in the first quarter, according to Statistics New Zealand. That lagged behind the 1.7 percent gain projected in a Reuters survey.

The nation's terms of trade, which measures the quantity of imports the country can buy with a set amount of exports, reached a 40 year high in the second quarter of 2014 as a high kiwi dollar kept import prices in check. They deteriorated in the second half of last year as dairy export prices declined and the currency fell from a post float high on a trade weighted basis. The gains may not last, given the price of crude oil has risen from its lows while dairy prices remain weak.

"This bounce in the terms of trade is likely to be reversed in the next couple of quarters, given that world oil prices have risen from their lows while dairy export prices have seen renewed declines," said Michael Gordon, economist at Westpac Banking Corp. "But even so, we believe that the current downturn in the terms of trade is nearing its end point. If we're right, the trough in this cycle is still likely to be higher than the previous peak seen in 2011."

Dairy export prices dropped 6.3 percent, while volumes fell 2.2 percent in the latest quarter, leading a 3.7 percent decline overall in export prices. Export volumes rose 1.4 percent.

Meat prices declined 4.5 percent while volumes climbed 4.6 percent to the highest level since the series began in 1990. Prices of forest products rose 1.4 percent and volumes fell 4.7 percent.

Imported goods prices fell 5.1 percent in the first quarter as volumes edged up 0.1 percent. Petrol and petroleum product prices tumbled 29 percent to the lowest level since the June 2005 quarter, while the volume fell 14 percent.

In seasonally adjusted terms, the value of exports fell 2.5 percent to $11.4 billion while the value of imports fell 4.8 percent to $11.8 billion.

The terms of trade weakened against the nation's biggest trading partners. For China, the terms of trade fell 4.4 percent, as export prices fell 2.3 percent led by dairy, and import prices rose 2.2 percent.

Against Australia the terms of trade fell 7.7 percent, as export prices fell 8.9 percent, led by crude oil and cheese, and import prices fell 1.2 percent.

The terms of trade with the US fell 3.3 percent as export prices rose 0.3 percent and import prices rose 3.8 percent, and against Japan, they fell 1.4 percent, as export prices fell 4.8 percent and import prices declined 3.5 percent.

That was made up for by the rest of the world excluding the European Union, with the terms of trade jumping 18 percent, as export prices were down 5.8 percent and import prices down 20 percent.

BusinessDesk.co.nz

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