Export dip causes concern

By JIM EAGLES business editor

New Zealand's export performance continues to be disappointing in spite of historically favourable trading conditions.

The latest overseas trade figures, released yesterday, show that export volumes actually fell by 1.7 per cent during the first quarter of the year even though there was an impressive increase in sales of dairy exports.

Only unexpectedly favourable terms of trade - which improved by 4.7 per cent to an 11-year high - kept the improving trend in the current account deficit on track.

The disappointing export figures, at a time when the New Zealand dollar is historically weak and prices historically high, have raised questions about where the economy is going in several areas:

* Several economists suggested the poor performance had increased the possibility the Reserve Bank would lower interest rates by another 0.25 of a percentage point on August 15.

Bank of New Zealand head of market economics Stephen Topliss said the contracting net export volumes and easing domestic price pressures left "the prospect of a further rate cut firmly on the table."

* Some commentators saw the figures as negative for economic growth. The ANZ Bank promptly dropped its growth prediction for the March quarter from 0.8 per cent to 0.5 per cent.

The bank's chief economist, Bernard Hodgetts, said the fact that the recovery was clearly export price-driven "does tend to blunt the gains because you are not getting the activity lift that you would normally expect at a time when you are growing your export base."

* There was also concern about the implications for growth in the future. "We certainly can't expect the same boost from the terms of trade next year," said Mr Topliss. "The only hope has to be that a global upturn will finally get export volumes going."

* Deutsche Bank senior economist Darren Gibbs speculated that the poor export performance might indicate that the New Zealand dollar was not, in fact, as undervalued as traditional measures might suggest.

"If export volumes do not respond soon then I would say the dollar might stay at its present level for some time."

Statistics NZ figures showed that New Zealand's exports price index actually fell by 2.8 per cent during the March quarter, but this was outweighed by a 7.1 per cent drop in the imports price index.

Price decreases occurred in most major commodities for both imports and exports. The most significant exception was lamb export prices which rose 9.2 per cent.

Terms of trade are now 11.2 per cent better than a year ago and the best they have been since 1990.

But although export prices are now 20 per cent higher than a year previously, export volumes fell by 1.7 per cent during the quarter and are now down 1.5 per cent on a year ago.

Dairy export volumes actually increased by 8.5 per cent during the quarter and non-food manufacturing products by 1 per cent. But that good news was outweighed by a drop in volumes in all other product areas with forestry exports leading the decline with a 10 per cent fall.

Imports rose by 1.1 per cent, although if major items like ships and aircraft are excluded they fell by 0.9 per cent. Worryingly, the major increase was in consumption goods - imports were up by 2.4 per cent.

Volumes of intermediate goods dropped by 0.9 per cent and of capital goods by 19.5 per cent. The ANZ's Mr Hodgetts noted that this "does not bode well for local production."

Economists generally agreed that the figures showed there was little sign of the export surge which, theoretically, should follow from the favourable conditions.

There was also a general consensus that there was no great pressure on the import side. But they were left scratching their heads about the reason for the lack of response to such positive price signals.

Among the possible reasons put forward were the global slowdown; the fact that the NZ dollar's depreciation has mainly been against the US dollar so exporters have no great advantage against, say, Australian competitors and a relatively weak domestic base to use as a springboard.