Harder times for NZ as trading nation

By Brian Fallow

WELLINGTON - It became harder for New Zealand to earn its living as a trading nation in the last quarter of 1998.

The terms of trade index - which measures the volume of imports which can be funded by a fixed volume of New Zealand's exports - fell 1.2 per cent in the December quarter as export prices fell while import prices remained flat.

The terms of trade figures are volatile but have been on a declining trend for four years.

The latest decline was worse than the 0.5 per cent the markets had expected and reinforces concerns about the December current account deficit due out next Thursday.

But the very small increase in import prices (0.1 per cent, mainly reflecting lower prices for oil and other raw materials) is supportive of the Reserve Bank's accommodating monetary policy stance.

Also recorded was the second successive quarterly rise in export volumes, in seasonally adjusted terms. Exports were up 1.6 per cent, after a 2.4 per cent rise in September, but were still 0.7 per cent lower than in the December 1997 quarter.

Manufactured export volumes were down 2.9 per cent for the quarter and 0.5 per cent for the year.

Bank of New Zealand economist Peter Jolly said that although export volumes were a bit stronger than expected, it remained evident that the export sector was unlikely to be supportive of growth in the current recovery, at least during its initial stages.

The price of most export commodities decreased in the latest quarter. Compared with the same quarter of 1997, export prices are up only 2.5 per cent overall, despite a 12.3 per cent fall in the trade-weighted exchange rate.

Dairy product prices rose 9.2 per cent in annual terms, meat 8.4 per cent and fish 12.7 per cent, but wool prices fell 13 per cent and forest products 6.2 per cent.