New Zealand's terms of trade with the rest of the world
improved 2.3% in the three months ending December to reach a
level not seen since December 1973 - 40 years ago.
Instead of a surge in export (or dairy) prices, a 2.8% fall
in import prices drove most of the improvement in the terms
Craigs Investment Partners broker Peter McIntyre said it was
important to note that falling import prices - with export
prices largely the same - increased New Zealand's
international purchasing power.
Import prices fell across the board, reflecting a rise in the
New Zealand dollar. Lower import prices kept inflation in
check, something with which the Reserve Bank would be happy.
''If we hadn't had the geopolitical risks, such as we see in
the Ukraine, the chances of our currency rebounding higher
were very strong. Risky currencies, where the kiwi is
included, have seen a loss of investor interest as bonds and
safe-haven investments have proven attractive,'' he said.
Drama in Ukraine had potential to escalate and dent investor
sentiment. Markets despised uncertainty, and political
turmoil usually added a bit of nervousness.
''Markets will likely remain focused on developments in
Ukraine over the coming days, as worries grow that Russia
could become more forceful and that some Western countries
could retaliate in some way.''
Equity markets pared some of their gains during the weekend
as investors were spooked at the emergence of Russian troops
in Crimea, and after the acting president of Ukraine,
Oleksandr Turchynov, accused Russia of following a similar
path to that which eventually led to a brief military
conflict with Georgia in 2008.
There was an acknowledgement the ''good trade times'' could
not last forever.
However, the demand for ''soft'' commodities of food was
increasing as the global economy strengthened, Mr McIntyre
New Zealand found itself in the same place as Australia was
in the days before the global financial crisis, with demand
for hard commodities being replaced for demand for food.
The big question to be answered was how strong could New
Zealand's currency still go as the terms of trade continued
''These latest figures will attract the attention of currency
investors around the world,'' he said.
Westpac senior economist Anne Boniface said the sky-high
terms of trade would provide a key pillar of support to
stronger growth in the New Zealand economy this year.
''We suspect a good chunk of the recent strength in the terms
of trade reflects structural changes in the drivers of New
Zealand's key exports - particularly, increased demand for
commodity goods from China and other emerging economies.
''While we expect New Zealand's terms of trade to ease in the
course of 2014, as increased global supply weighs on key
export commodity prices, over the medium term we are
optimistic sustained strength in the terms of trade will
remain a feature of the New Zealand economic landscape.''
Mr McIntyre said there had been much focus on Christchurch
and Auckland in recent months as the drivers of New Zealand's
economic growth. However, it was down to the regions when it
came to providing good terms of trade growth.
A third of New Zealand's export income came from south of the
''The Government's focus is on exports and this is where it
is all happening.''