Export prices stage biggest slump since 1951

Thursday 10th September 2009

New Zealand export prices tumbled 11.6% in the second quarter, the biggest decline since 1951, reflecting weaker prices for dairy products and meat that were exacerbated by a stronger currency.

The slide in export prices, while imports fell 2.9%, worsened the nation’s terms of trade in the three months ended June 30, which tumbled 9% to the lowest since September 2006. It marked the fifth consecutive quarterly decline in the terms of trade, which measures how much imports the nation can buy from a fixed quantity of exports.

“A terms-of-trade hit of this magnitude is a salutary lesson that we are not yet clear of the impact from the global financial crisis, with negative implications for exporter incomes, overall growth and the external accounts,” said Robin Clements, senior economist at UBS New Zealand.

Dairy prices tumbled 24%in the second quarter while meat prices declined 7%. Volumes of dairy exports surged 24% and volumes of petroleum products jumped 63%, mainly reflecting increased crude oil shipments.

The trade-weighted index of the New Zealand dollar rose 8.7% in the second three months of the year, the biggest increase since 1985, according to the government statistician. The TWI, which tracks the kiwi dollar against the currencies of five major trading partners, was recently at 63.94 and is near its highest since early October 2008.

Reserve Bank Governor Alan Bollard today said the New Zealand dollar’s strength “is likely to lead to further deterioration in New Zealand’s external accounts, undermining the sustainability of the recovery.”

Bollard kept the official cash rate at a record low 2.5% and said the OCR will stay at current stimulatory levels through until the second half of 2010. Reserve Bank Governor Alan Bollard said today the currency’s gains are hurting company profits and hindering an export-led recovery.

He kept the benchmark interest rate unchanged at a record-low 2.5% and said he won’t raise borrowing costs until late 2010. The decline in the terms of trade index was almost four times greater than the 2.5% drop predicted in a Reuters survey.

Businesswire.co.nz

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