Deutsche Bank: NZ Overseas Trade Indexes - Sept Q
Data Flash (New Zealand)
NZ Overseas Trade Indexes - Sept Q 1999
New Zealand's terms of trade rose by 3.5% in Q3, with export prices rising by 3.0% and import prices falling by 0.4%.
Export prices were 1.1% higher than a year ago, while import prices were 0.6% lower.
The volatile export volume series was 4.5% above the September 1998 level, reflecting the ongoing external sector recovery.
Import volumes increased by 18.4% since Q3/98, due to continued strong domestic demand.
The differential volume growth between export and imports has been offset only marginally by improving terms of trade and led to the significant widening of the merchandise trade deficit over the past year.
Today's data confirmed that the export recovery gained momentum in Q3, with both volumes and commodity prices showing an upward trend. That is consistent with our view that a strengthening export sector performance will lift the NZ economy to 4% growth in 2000.
On the import side, the plausibility of the data has to be questioned. The extremely strong volume increase (7.7% qoq seas. adj.) and the 0.4% fall in import prices at a time when the NZ TWI weakened by 4.2% raises the question of whether the appropriate price/volume split has been applied to the nominal trade data.
It appears difficult to explain the following inconsistencies:
Import prices fell, while the September quarter PPI input data showed a massive rebound (+1.4% qoq) over the same period.
The price of imported capital goods fell for the second quarter in a row by over 5%, while the Capital Goods Price Index recorded continued price rises in that area.
Prices of imported cars have supposedly fallen by 3.6% in the September quarter, while the NZ car industry in early October announced an average 2% increase in car prices as a result of the sharp drop in the NZD/Yen cross rate.
Recent business surveys show that the upturn in pricing intentions is based on higher cost pressures, which are directly related to imported goods.
In summary, at face value the import price data compares favourably with the RBNZ's assumptions built into the November forecasts. However, it is likely that the Bank will also apply a degree of skepticism. The volatility in the data suggests a high risk of a significant rebound next quarter, fuelled by another 30% rise in oil prices that has not yet made it into the official statistics.
Nevertheless, today's data has added another element to the list of arguments against a cash rate move on 19 January. Despite a strong economy, the RBNZ may come to the conclusion that there is not sufficient evidence of stronger-than-expected inflation pressures. Given the changed political environment, it is unlikely that the RBNZ, at this particular juncture, would want to expose itself to the criticism of being overly zealous.
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