By Brian Fallow
Between the lines
Tentative signs of recovery in Japan and in New Zealand commodity prices come hard on the heels of data showing how desperately a turning point is needed.
The terms of trade which measure the purchasing power of a basket of New Zealand's exports are their lowest since 1987 and expected to get worse before they get better. And the trade deficit is the widest it has been since 1985.
We are up to our nostrils in debt to the rest of the world and the water is rising. The most optimistic picks for Friday's balance of payments number are that it will stay at its present 6 per cent of GDP.
Even at that rate, New Zealand's net external liabilities to GDP ratio, at 85 per cent very high by international standards, will still worsen.
Hence the more than neighbourly pleasure with which Japan's surprisingly strong March quarter GDP figure was greeted.
No doubt the 1.9 per cent figure for the quarter overstates the strength of Japan's rebound. No doubt the quirks of seasonal adjustment mean some of that growth is borrowed from adjoining quarters.
But even if the true figure is half that, it would still be a much stronger performance than expected for Japan, our third largest export market.
Heartening for New Zealand exporters are the signs that the private sector is getting out of the doldrums.
Through 1998, private consumption in Japan was flat. Worse, capital expenditure by businesses and residential construction both went backwards.
But in the latest quarter, all three of those components of GDP improved, with business investment up 2.5 per cent, housing investment up 1.2 per cent and consumption spending up 1.2 per cent.
For a New Zealand exporter like Methanex, for example, any signs of stirring in Japan's torpid house-building industry would make a welcome change.
Forty per cent of its methanol sales are to Japan, much of which is used in building products.
Meanwhile ANZ Bank's commodity price index showed that world prices for New Zealand's main export commodities rose 1.6 per cent in April and provisionally a further 2.2 per cent in May.
Fluctuations in the exchange rate however meant that in New Zealand dollar terms, the index fell 0.6 per cent in April, though it recovered most of that decline in May.
Already the kiwi dollar has strengthened since the Japanese GDP figure was announced, illustrating the fact that the exchange rate will take some of the gloss off an improving export outlook, just as it took some of the sting out of the deteriorating external environment last year.
Two vital signs on road to recovery
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