NZ second-quarter terms of trade fall 2.1% as dairy export prices fall, oil drives up import prices

Thursday 1st September 2016

New Zealand's terms of trade fell in the second quarter as dairy products led a decline in export prices and a rebound in crude oil drove up prices of imports.

The terms of trade, which measures the purchasing power of New Zealand's exports abroad, fell 2.1 percent in the three months ended June 30, Statistic New Zealand said. Economists had expected a decline of 1.5 percent. Total export prices fell 1.9 percent while import prices gained 0.2 percent.

The value of exports rose 7.6 percent, seasonally adjusted, as export volumes rose 10 percent to the highest level since the series began in 1990, the government statistician said. The gain in export volumes was driven by an 18 percent increase in milk powder, a 5.3 percent rise in butter, a 16 percent gain in beef and an 8.1 percent rise in other meat. Dairy products led the decline in prices, with milk powder falling 8.7 percent, butter down 4.8 percent and cheese down 5.4 percent.

Forestry export values rose 7.9 percent, seasonally adjusted, the fifth quarterly gain in a row, as volumes rose 2.2 percent and prices gained 0.9 percent. Fruit values rose 11 percent to a record as volumes climbed 2.9 percent and prices gained 0.9 percent.

Import volume rose 0.7 percent, also to the highest since the series began in 1990, and the total value of imports gained 1.2 percent. Petroleum and petroleum products led the gains, with prices jumping 19 percent in the second quarter after declines of 24 percent and 25 percent respectively in the preceding two quarters. The value of imported petroleum products rose 11 percent while the volume fell 6.9 percent.

The volume of imported capital goods rose 22 percent in the latest quarter, largely due to a 44 percent gain in industrial transport equipment.

Economists expect an improvement in the terms of trade in the face of improving dairy product prices. The price of whole milk powder in the fortnightly GlobalDairyTrade auction, which jumped about 19 percent to US$2,695 a tonne on Aug. 16, the highest since October last year. Rising prices gave Fonterra Cooperative Group the confidence to lift its forecast farmgate milk price for the current season by 50 cents to $4.75 a kilogram of milksolids last week.

"From here, we expect that the terms of trade to lift over the next year as dairy prices recover," said Nathan Penny, senior rural economist at ASB Bank. "However, the export volume surge over the quarter is likely to prove temporary. We expect some payback over coming quarters, particularly as NZ dairy production falls this season."

The services terms of trade fell 2.4 percent in the second quarter, as export prices fell 2 percent and import prices rose 0.4 percent.

By trading partner, the terms of trade rose 2.1 percent with China, 1.5 percent with Australia and 3.2 percent with Japan. However, the terms of trade dropped 1.9 percent with the US , 1.3 percent with the European Union and 13 percent with the rest of the world.

(BusinessDesk)

BusinessDesk.co.nz

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