Terms of trade falls less than expected in fourth quarter

Photo / Dean Purcell

New Zealand's terms of trades fell for a second quarter in the final three months of 2011 as export prices rose less than the price of imports in the face of a weakening New Zealand dollar.

The terms of trade fell 1.4 per cent in the fourth quarter, adding to a 0.6 per cent decline three months earlier, according to Statistics New Zealand. A decline of 1.9 per cent was forecast for the latest period, according to a Reuters survey.

Prices for exported goods rose 1.7 per cent, led by gains in meat and fruit and a decline in dairy, while import prices rose 3.2 per cent led by fuel, machinery, transport equipment and food and beverages.

The terms of trade, which measures the amount of imports that can be funded by a fixed quantity of exports, rose to a 37 year high in the second quarter, driven by gains in export prices of dairy products, petrol products, meat and wool.

The decline in the terms of trade in the latest three months came as the nation recorded record fourth-quarter volumes of total exports and seasonally adjusted dairy shipments. The 2.9 per cent gain in exports was driven by dairy products such as milk powder, the government statistician said. Import volumes fell 2.1 per cent, seasonally adjusted.

"While the terms of trade remains high, we believe it has peaked for now and will moderate further over the course of 2012," said Philip Borkin, economist at Goldman Sachs & Partners New Zealand. "This will weigh on national income growth. Net exports should make a positive contribution to 4Q11 GDP growth, at least partly offsetting an expected run-down in inventories built up over 3Q11."

Among exports, prices of meat rose 3.4 per cent, fruit gained 9.6 per cent and dairy prices declined 1.1 per cent. Prices of imported petroleum climbed 3.9 per cent, mechanical machinery rose 3.7 per cent, transport equipment gained 3.2 per cent and food and beverages rose 3.3 per cent.