The seasonally adjusted volume of merchandise exports from New Zealand fell 0.3% in the March quarter from the December quarter, while the general price of those exports rose 6.3% over the quarter, figures released by Statistics New Zealand show.
Higher dairy and meat export prices, up 5.5% and 10% respectively, helped lift New Zealand's terms of trade to a 37 year high in the March quarter as the 6.3% rise in export prices trumped a 5.4% rise in import prices from December, Stats NZ said.
The increase in export prices was broad-based, and also included price rises for forestry products (up 4.2%) and wool (up 12.0%), Stats NZ said.
Exchange rates published by the Reserve Bank are used to value exports. The Reserve Bank trade weighted index (TWI) fell 0.8% in the March 2011 quarter. The New Zealand dollar depreciated against all of our five major trading partners' currencies during the quarter, Stats NZ said.
Since the end of March the TWI has appreciated 6.3% to just over 71.
Petrol prices fuel import price rise
In the March 2011 quarter, prices for imported goods rose 5.4%. Petroleum and petroleum products contributed half of the overall increase. Excluding petroleum and petroleum products, import prices rose 2.7% in the March 2011 quarter. A rise in food and beverage prices (up 4.7%) also contributed to the latest rise in import prices.
Dairy story
Dairy export prices and volumes both rose in the March quarter.
“Seasonally adjusted dairy export volumes rose 7.6% in the March quarter, reaching their highest level since the series began in the June 1990 quarter,” Statistics NZ’s prices manager Chris Pike said.
Seasonally adjusted export volumes fell 0.3% in the March 2011 quarter but remained at an historically high level, following a 4.0% rise in the December 2010 quarter, Pike said.
Meat, non-fuel crude materials, and fruit and vegetables were all major contributors to the overall fall in export volumes. Dairy, petroleum and petroleum products, and forestry provided notable offsetting increases, he said.
Seasonally adjusted import volumes rose 5.1% in the March 2011 quarter – the seventh consecutive quarterly rise.
"Total import volumes are 21.5% higher than the most recent low reached in the June 2009 quarter, but are still 1.8% lower than their June 2008 quarter peak. Intermediate goods (used as inputs in producing other goods) and consumption goods were the main contributors to the rise in import volumes in the March 2011 quarter," Pike said.
Above expectations
JP Morgan economist Helen Kevans said the 0.9% terms of trade was higher than the market had expected (0.6%).
"The resulting boost to national income eventually should give a much needed lift growth in 2011," Kevans said.
"The multiplier effects from the income boost so far have been limited, however, as many farmers still are recovering from over-investment in the last commodity price boom. The sharp fall in farm prices since end-2009 has meant that many farmers have used the windfall from the higher terms of trade to reduce debt," she said.
"This has delayed the full pass-through of higher farmer incomes to broader economic activity. But, the focus on balance sheet repair will not continue indefinitely. The sheer size of the income boost, and its positive impact on farm revenues and cash flows, should mean that at least some of the income injection will filter through to the broader economy, particularly amid recent signs that the rural property market has started to stabilise."
See Bernard Hickey's piece, 'Farmers saving export windfall'
(Updates with JP Morgan comments)
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9 Comments
So despite our terms of trade being at a 37 year high we are still getting poorer and our current account deficit is still expected to expand to 6.9% by 2015 (Treasury)
Why is that?
Because we continue to live beyond our means and fund it by foreign borrowing and asset sales.
See more here. http://www.interest.co.nz/node/52914
Until we start to control some of these capital flows and actively take steps to borrow less and sell less assets we will continue to get poorer despite this windfall situation with our export prices/import prices
cheers
Bernard
You're not suggesting Alan raise the ocr high enough to choke off the demand for credit are you Bernard...shame on you....that would go against govt policy to pork some confidence between now and November...now why would they be doing that I wonder!
Higher rates would encourage saving and greater saving would mean less reliance on foreign dosh...and that would mean fewer overseas trips for Bill....and the economy would adjust to less splurge and more prudent peasant behaviour.....nah.... we can't have that sort of crap going on....
Love this comment from a USA dairy site
>>>>>
along with recent projections of higher milk production this fall in New Zealand, the recent weakening in international prices for anhydrous milkfat for deliveries later this year, and the growing competitiveness of U.S. cheese plants for milk, make a delightful market for speculators but something closer to a nightmare for everyone else.
Alex (Bernard? anyone?) how does Stats NZ calculate the export side our our "terms of trade"? The info on their website is pretty opaque and appears to mostly concern agricultural commodities. Is there any weighting applied to the different export sectors (commodities, manufacturing, services, tourism etc.)? Depending on how they do this it is quite easy to imagine a scenario where our terms of trade improve but our current account deficit worsens.
“This graph of the Trade Weighted Index over the past three weeks shows that it is not just a US dollar story. The New Zealand dollar has in fact been rising against almost all major currencies.”
http://www.realeconomy.co.nz/176-currency_head_wind_more_like_a.aspx
Yet .... who cares?
http://www.stuff.co.nz/business/money/5082928/Forget-slowing-dollar-Reserve-Bank-told
"Business leaders are urging the Reserve Bank not to intervene in the currency markets as the New Zealand dollar hit a second post-float high against the United States currency in as many days."
Business leaders?
Instead authentic leadership for the 'real economy' is saying, "The Government and the Reserve Bank cannot continue to sit and watch as the currency appreciates say the New Zealand Manufacturers and Exporters Association (NZMEA). Any credible export based economic plan must deal with a persistently overvalued and volatile currency."
Cheers, Les.
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