Exports fall as imports keep on flooding in

New Zealand's export dollar does not stretch as far as it used to, figures out yesterday show.

Export volumes fell 0.7 per cent when adjusted for seasonal effects, Statistics New Zealand said. Meat, dairy products and manufactured goods all fell.

Export volumes have fallen for three of the last four quarters and, in the June quarter, were 4.4 per cent down on the same period last year.

Meanwhile, the terms of trade - measuring changes in the relative prices of exports and imports - fell 1 per cent in the June quarter, albeit from a 30-year high.

Rising terms of trade boosted the economy over the past couple of years, but now that tail wind has become a head wind.

In the June quarter, a 1.5 per cent rise in import prices dwarfed a 0.5 per cent lift in export prices.

ASB economist Kate Skinner said the decline in the terms of trade indicated a fall in the purchasing power of New Zealand's exports and illustrated how high oil prices were an effective tax on the economy.

Oil (up 23.6 per cent) accounted for most of the increase in import prices. But even excluding oil, import prices rose 0.7 per cent, with notable rises in steel, plastics, food and beverages.

Deutsche Bank chief economist Ulf Schoefisch said the figures confirmed the precarious situation of the export sector.

"The overvalued dollar has led to a downward trend in export volumes and, although export prices continued to rise in the June quarter, the latest commodity prices suggest a weaker trend ahead," he said.

ANZ's commodity price index has recorded falling world prices for the main export commodities in June, July and August.

But while exports struggled, imports rose 3 per cent in volume terms in the quarter. Imports of consumer goods rose 5.1 per cent and cars 10.2 per cent, while imports of capital goods reversed a decline in the March quarter.

Schoefisch said the differential between exports and imports would continue as long as the dollar remained overvalued. With the Reserve Bank keeping interest rates high he did not expect a correction of the currency until well into next year.

National Bank chief economist John McDermott said deteriorating terms of trade would make it harder to turn around a trade deficit which had widened to $5 billion.

He expected the terms of trade to remain high compared with the past 10 years.

But a structural improvement in the terms of trade was in danger of being eliminated by a structural shift in international oil prices, he said.

"We now believe international crude prices will settle around US$60 a barrel long-term from $45 previously, and have pencilled in further declines in the terms of trade of around 5 per cent over coming quarters."

Trade gulf

* Export volumes fell in the June quarter, led by the main pastoral commodities.

* Imports flooded in as consumers kept spending.

* Import prices, especially oil, outstripped export prices.

* The combination suggests the $5 billion trade gap will get worse before it gets better.