NZ: Overseas Trade Indexes - Q2 2001

Data Flash (New Zealand)

"As we release this research, the full impact of the tragic events that took place in New York City on 11th September remain unclear. Needless to say, our thoughts are above all with everyone affected by these events. It is also unclear at this juncture how the operations of the major financial exchanges and markets will be affected, and how long any interruptions will be for those markets whose operations may be suspended.

Nothwithstanding these terrible events, however, we believe our responsibility as researchers remains to provide the best advice we can to you, our customers, so that you can continue to manage the financial risks you face."

Key points

Export prices increased by 1.9% qoq, while import prices rose by 2.2% qoq. In each case, the renewed NZD weakness in Q2 contributed approximately 1.5pps to the increase.

Export prices were 17.5% higher than a year ago, while import prices rose 7.1% over the same period.

The merchandise terms of trade fell by 0.3% in Q2, but were 9.8% higher than in mid-2000.

Both exports and import volumes rose by 3.2% in Q2 (seas. adj.).

The terms of trade for services fell by 1.5% qoq, reflecting a 0.3% rise in export prices and a 1.8% rise in import prices.

Comment

Today's data confirmed the continuation of external price pressure during the second quarter of this year. The recently released Producer Price Indexes, which recorded increases of 1.4% and 1.3% qoq for inputs and outputs respectively, had already indicated the downstream price effects of the export and import price rises.

However, going forward, both export and import prices should moderate, due to the firming of the NZD and the effect of continued global weakness on commodity prices. Some moderation in world prices for New Zealand's export commodities has already been observed over the past few months.

Consistent with weaker commodity prices, we forecast a fall of the terms of trade over the remainder of this year, which will moderate the demand stimulus the New Zealand economy has received from external sector income over the past year. That should slow growth somewhat from the 1.1% qoq we expect to be recorded for Q2.

Further out, growth prospects have become more uncertain in the light of the events today in the United States. Should the terrorism attack have a lasting negative impact on confidence and spending - a clear risk - the economic slowdown in the US will be more drawn out than initially expected.

The RBNZ issued a press statement this morning. Dr Brash indicated that "In terms of effects on the world economy, and therefore on the stance of monetary policy, the Reserve Bank is monitoring developments."

We doubt that the RBNZ will consider adjusting domestic policy settings until the economic and financial consequences of today's events become somewhat clearer. However, the risk that the RBNZ undertakes further `insurance' easing, notwithstanding the current good performance of the New Zealand economy, has clearly increased, with some risk that this may happen as early as the 3 October interim review.

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