NZ terms of trade down slightly in September quarter

11.40am - By SIMON LOUISSON


New Zealand's terms of trade, measuring how many imports a fixed quantity of exports buys, fell 0.3 per cent in the September quarter, Statistics New Zealand said today.

That was worse than predicted by a Reuters poll of economists who had forecast a 0.2 per cent rise.

For the year to September the terms of trade index has improved 2.2 per cent.

Export prices fell by 1.8 per cent in the quarter against a 1.5 per cent fall in import prices.

Over the year export prices have fallen 9.6 per cent while import prices have dropped 11.4 per cent.

The main factor in the quarterly fall was the 2.2 per cent rise in the value of the New Zealand dollar as measured by the trade-weighted index.

Price falls for pastoral and dairy products, down 2.8 per cent, were the main contributors.

Meat was down 3.8 per cent and dairy products fell by 1.5 per cent.

Non-food manufactured products fell 2.0 per cent, driven by falls in the prices of casein and methanol.

On the import side, mechanical machinery, down 3.2 per cent, electrical machinery, down 4.0 per cent, and petrol, down 3.5 per cent, were the main contributors to the overall drop.

Export volumes rose 0.9 per cent in the September quarter following a 3.2 per cent fall in the June quarter.

Most of the major indexes rose with the meat, wool and by-product index being the main contributor.

The other main contributor was non-food manufacturers.

Partly offsetting these, were falls in the indexes for non-fuel crude materials, forestry products and fish.

For the year to September export volumes have risen 0.5 per cent while import volumes have rise 10.1 per cent.

September quarter import volumes rose 1.2 per cent in the quarter, the eighth consecutive quarterly rise with record volumes posted in each of the last four quarters.

Capital goods, consumption goods and motor spirit all posted rises while imports of intermediate goods and cars fell.

The services index on terms of trade rose 0.8 per cent due to import prices falling 0.9 per cent and exports fell 0.1 per cent.

This was the eighth consecutive rise in the terms of trade for the services index.

Bank of New Zealand economist Stephen Toplis said that while he had increased his estimate for GDP growth in 2003 to 3.1 per cent and to 2.8 per cent in 2004 and 2.9 per cent in 2005, there was a growing danger of "hard landing" for the economy.

The expected impact of the surging New Zealand dollar had not occurred.

"While short-term all the news is good, we are starting to develop the unsettling feeling that things could turn to custard if we are not now very careful.

"2005 is the danger year as far as we are concerned," he said.

Due to hedging, fixed price contracts and lags, the economy was barely yet feeling the effects of the New Zealand dollar's rise.

There was a real risk of the New Zealand dollar, already over-valued, rising further.

"Consequently, the demand for exports may start to be impacted and import penetration start to grow.

"This is disconcerting seeing that the ongoing strength we, and others, forecast for the economy is partly predicated on an improving net export position."

The redeeming feature was that prices for commodity exports were starting to rise as the global economy recovered.

- NZPA