Terms of trade fall further but capital investment continues to rise
Rob Hosking | Monday September 03, 2012
The country's terms of trade took another dip in the June quarter, falling 2.6%.
Data released by Statistics New Zealand today shows a continued decline in the balance between prices paid for imports and those received for exports.
The accompanying trade volume data, however, shows a more mixed picture.
First, the trade price data. Today's 2.6% fall is the fourth in a row, following a 2.3% fall in the first three months of the year and 0.6% and 1.4% declines in the previous two quarters.
The fall is driven largely by two factors, Statistics NZ says: a drop in world dairy prices and the high New Zealand dollar.
Overall, prices received for exports fell 1% while prices paid for imports rose 1.7%.
Dairy prices fell 2.6% in the March quarter and have fallen 14% for the past 12 months after a 7.7% rise the previous 12 months.
Meat prices fell 2.3%, mostly through a 7.6% drop in lamb, falling 7.3% for the year to June compared to a 19% rise the previous 12 months.
On the import side of the ledger, the main upward pressure came from fuel, with petroleum products rising 8.4% for the quarter and 10% for the year to June. This follows a 21% rise the previous 12 months.
The trade volume data shows a more complex picture. Volumes of both exports and imports declined – which underlines the subdued state of the economy.
Export volumes fell 0.4% – mostly because of a 4.9% fall in dairy products – but the trend for export volumes remains at a record high level, Statistics NZ says.
Import volumes fell 3.1%, with the main cause being a fall in imports of intermediate goods by businesses.
A fall was expected because the last two quarters have seen an unusualy large build up of inventories by businesses.
Imports rose 12% in the March quarter and the volume of such goods – stocks for businesses, plus fuel – is at the highest level ever.
The question for today's figures was not whether there would be a drop, but how big the fall would be. The drop is not as large as a number of economists were anticipating.
When the always-volatile fuel imports are excluded, imports rose 0.6% for the quarter.
More tellingly, and more optimistically, imports of capital goods by businesses continues to rise.
Capital machinery and plant imports rose 13% for the quarter, indicating New Zealand businesses continue to use the high New Zealand dollar and low interest rates to liff their investment.