Slower world growth to weigh on commodity prices

WestpacTrust is the New Zealand division of Westpac Banking Corporation, which is incorporated in New South Wales, Australia

Monday 27 August 2001

Slower world growth to weigh on commodity prices

New Zealand’s commodity prices are likely to struggle over the next year or more as world growth continues to slow and the New Zealand dollar regains some momentum, according to Agribiz, WestpacTrust’s quarterly rural publication released today.

With the slowdown in the US economy, many exporting nations are now feeling the pinch, especially the Asian and Latin American regions. Economic growth in the European economies has also hit the wall, with no sign of a rebound. Meanwhile, Japan is confronted with nothing but unpleasant, albeit necessary, economic reform.

“With lower growth in almost all of our export markets, we expect to see demand for New Zealand’s exports drop off this year, impacting on commodity prices. The onus is now increasingly on the domestic economy to maintain economic growth, with the heat coming out of the export sector”, said Adrian Orr, Chief Economist of WestpacTrust.

“Even with lower commodity prices, the recent appreciation of the New Zealand dollar looks sustainable and likely to continue for the rest of the year. This makes it timely for exporters to consider reducing their financial risk through, for example, the use of exchange rate options, ensuring they have manageable debt levels, and ongoing financial diversification in off-farm assets. The bottom-line is that last season was exceptional. Don’t base your future spending or land valuation on this one observation”, said WestpacTrust economist, Richard Sullivan.

The August issue of Agribiz also looks at some of the effects on the dairy industry of the Global Dairy Company’s establishment. WestpacTrust concludes that the merger is a good progression and likely to

increase processing efficiency and bring transparency to asset values and milk payments. However, they warn that the merger is not a magic ‘cure-all pill’. The dairy industry’s ability to innovate, develop products and markets, and leverage its biotechnology capabilities will be the key to ongoing success. Competition will only grow.

ENDS

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