New Zealand’s terms of trade fall in Q2, likely to further drop modestly in Q3

New Zealand’s terms of trade declined in the second quarter, partly reversing the unexpected strength seen in the first quarter. Terms of trade is expected to further drop modestly in the third quarter; however, a trough is likely to be close at hand, noted ANZ in a research report. Hence, the terms of trade continue to be at a historically robust level that is remarkable given the adjustment seen in global dairy prices. This is evidently a vital factory justifying the current outperformance of NZD.

New Zealand’s goods terms of trade declined 2.1 percent in the second quarter that was a bit weaker than market projections of a drop of 1.5 percent in sequential terms. The terms of trade are down only 8 percent from their highs.

Export prices in NZD terms dropped 1.9 percent in the second quarter. Given that the New Zealand dollar is strengthening in the quarter, this suggests broadly flat prices in “world” terms, according to ANZ. Subdued dairy prices were partly countered by lesser growth throughout forestry, seafood and non-fuel crude material export prices.

Meanwhile, NZD import prices were unchanged in the second quarter, rising 0.2 percent in sequential terms. This suggests a bit higher “world” prices. Prices of petroleum and petroleum products were up 19 percent quarter-on-quarter, after two straight quarterly declines of about 25 percent quarter-on-quarter.

Associated volume data implies that net exports would be contributing positively to the second quarter GDP growth. Volumes of export rose sharply by 10.2 percent quarter-on-quarter, whereas those of imports rose more modestly by 0.7 percent in sequential terms. There were huge rises through a number of export categories, especially meat and dairy.

“It is likely that a lot of this growth came out of inventories, dampening the impact on the GDP accounts. Nevertheless, we continue to see some upside risk to our current estimate for Q2 GDP growth of 0.8 percent q/q”, added ANZ.