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Today's terms of trade figures looks like a win-win for the economy.
This critical economic indicator measures New Zealand's purchasing power in the world: put simply, what New Zealand's exports buy in return for imports.
The terms of trade rose 2.3% in the December quarter, taking it to the highest level since December 1973 and just 3.5% below the all time peak of June 1973. That was the period the New Zealand economy was body slammed by the first oil price shock, the impact United Kingdom joining the European Union, and a meat and wool price slump, and which triggered a couple of decades' of economic adjustment.
The latest increase is actually made up of two decreases: both the prices paid for exports and for imports fell, it is just that the price of imports fell more than for exports. The impact can be seen in the import volumes: New Zealand businesses are using the higher purchasing power to boost inputs, both capital investment and in the form of other expansion.
The export side of the ledger is driven largely but not exclusively by dairy (and this reliance does give cause for concern). Export volumes are up 9.7%, mostly due to a 23% (seasonally adjusted) rise in dairy exports. More than a third - 39% - of New Zealand's exports are now dairy produce in some form or other. Export prices overall fell 0.5%, with a 1.1% drop in dairy being the largest part of that. Forestry prices also fell, while wool prices rose 8.7%.
These figures pre-date the more recent increases in dairy payout announcements as well as the rise in Global Dairy Price.
These figures pre-date the more recent increases in dairy payout announcements as well as the rise in Global Dairy Price.
Import prices fell further, dropping 2.8% overall, and driven by drops in mechanical machinery (down, 3.8%; election machinery (5.2% and chemical and related products (down 3.7%). the impact of this can be seen in the import volume data also released today.
These show the cheaper imports - partly due to the high exchange rate - are being taken advantage of by New Zealand businesses. The volume of capital goods imports is up 22.17% on a year ago. Intermediate goods are up 6.1%, while within that group imports of industrial supplies are up 9.12% and parts and accessories of capital goods are up 6.5%.
Rob Hosking
Mon, 03 Mar 2014
Mon, 03 Mar 2014
© All content copyright NBR. Do not reproduce in any form without permission, even if you have a paid subscription.
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Terms of trade continue to surge
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