Farm Exports Good But Clouds On The Horizon

9 March 2001

Farm Exports Good For Now But Clouds On The Horizon

Exporters will continue to do well in the next few months but clouds are on the horizon as the slowdown in the United States economy impacts, according to the latest issue of Agribiz, WestpacTrust’s economic newsletter for the agricultural sector.

WestpacTrust says that international commodity prices are expected to fall as the slowdown in the US economy flows through to the global economy. Despite the global slowdown, export volumes should continue to rise, driven by natural primary volume growth and supported by a competitive exchange rate.

“Although the US slowdown will eventually impact on New Zealand, this will take more than six months to be felt here,” said WestpacTrust chief economist Adrian Orr. “In the interim, we anticipate exporters will continue to do well and the domestic economy to gain momentum, in part assisted by lower interest rates.”

WestpacTrust is still predicting that the New Zealand economy will grow about 3% this year as the domestic economy picks up.

“The US slowdown and lower international interest rates have provided scope for interest rate reductions in New Zealand,” Mr Orr said. “As New Zealand's export growth slows, we anticipate the Reserve Bank will cut interest rates in May.”

Mr Orr said the year 2000 ended on a high note for New Zealand, with a series of positive economic data being released. As expected, the bulk of the economic growth was generated by the primary sector, with a flow on into processing and manufacturing.

“The year 2000 will be remembered as a vintage year for rural-based businesses in New Zealand. Farmers will have been praising a season that was about as good as it gets down on the farm,” said Mr Orr. “A return to ‘normal’ weather patterns following two seasons of drought, and an Asian economy rebounding from its various financial crises provided stimulus to both supply and demand. Added to this was a very competitive dollar that defied the pundits. Consequently, production, prices and profits grew strongly through late 1999 and 2000.

“The upcoming season also promises to be another profitable one, although it will not be as universally terrific. Risks exist with regard to the international community that could have significant effects at the farm gate in New Zealand. In particular, growth in the United States economy has slowed dramatically. This means less US demand for products, and potentially weaker commodity prices,” he said.

ENDS

For further information, please contact: Adrian Orr WestpacTrust Chief Economist 04 4708250

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