Strong dairy exports bode well for economic growth. photo by Craig Baxter.
New Zealand's terms of trade surged 7.5% in September, much
higher than market expectations.
The stronger than expected result largely reflected higher
than expected export prices.
The terms of trade represent New Zealand's purchasing power
with the rest of the world.
ASB economist Christina Leung said strong global commodity
prices remained a key support for the third-quarter terms of
''However, the export volumes story was not quite as
positive, with a decline in dairy and meat exports driving a
more modest fall in export volumes in the quarter.''
Statistics New Zealand figures showed export prices increased
8.9% in the quarter, stronger than the increase in global
commodity prices in the quarter would suggest, she said.
Higher dairy prices, which surged 24% in the third quarter,
remained a key driver.
During the first half of this year, supply concerns as the
summer drought intensified drove a surge in global dairy
''It is very encouraging to see global dairy prices
continuing to increase, despite a recovery in dairy
production volumes in recent months, reflecting continued
strong global demand, despite the Fonterra whey contamination
scare in August.''
Export prices were also boosted by a strong increase in
forestry and meat prices in September, up 6.8% and 7.9%
respectively, reflecting strong global demand for other key
commodity exports, Ms Leung said.
The ASB commodity price index showed prices remaining high
across those three commodity groups in recent months,
indicating continued strength in export prices over the
remainder of the year.
Import prices recovered 1.2% in the quarter, following four
consecutive quarters of declines.
While higher petroleum prices were a major influence behind
the recovery during the quarter, excluding petrol, import
prices increased 0.8%, partly reflecting the easing in the
New Zealand dollar's value over the quarter, she said.
''Today's stronger than expected result bodes well for
national income growth. Over the past year, the terms of
trade have increased 16%.''
The Fonterra whey contamination scare in August provided some
challenges for the dairy sector, but the effects on New
Zealand exports were shortlived. Global dairy prices remained
at high levels, while milk production continued to recover in
the wake of the summer drought earlier this year. Fonterra
last week confirmed its record milk price payout of $8.30 kg
ms for the 2013-14 year.
''These developments are very positive for our dairy sector.
We expect a continued recovery in imports over the coming
year on strengthening domestic demand, particularly in the
Stronger retail spending was encouraging an increase in
imports of consumption goods. Recent business surveys had
pointed to an improvement in investment intentions and that
was likely to support a continued increase in capital goods
imports over the coming year, Ms Leung said.