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NZ terms of trade improves in 2Q on dairy exports

NZ terms of trade improves in 2Q on dairy exports, seen at 40-year high in 3Q

Sept. 2 (BusinessDesk) – New Zealand’s terms of trade, which measures the amount of imports the country can buy with a set amount of exports, improved in the second quarter as dairy products drove a gain in export prices while petroleum and cars led a decline in import prices.

The terms of trade rose 4.9 percent in the second quarter from three months earlier, according to Statistics New Zealand. That beat the 4.1 percent forecast in a Reuters survey as import prices fell 1.5 percent, three times as much as estimated, and export prices rose 3.4 percent, less than the 4 percent expected.

Prices of dairy products climbed 14 percent in the latest quarter, even as volumes fell. Milk powder had the greatest impact, with prices up 15 percent and volumes down a seasonally adjusted 23 percent, the government statistician said. It attributed the decline to drought early in 2013, which curtailed milk production in the North Island.

“The booming dairy prices dominated the release, though import prices fell for the fourth consecutive release, providing an additional boost to the terms of trade,” said Westpac banking Corp economist Nathan Penny. “With more of the recent dairy price surge to come through, we expect the terms of trade to hit a 40-year high in the September quarter, and then to remain high into 2014.”

Prices of forest product exports gained 4.2 percent, led by a 4.4 percent gain for wood prices, while fruit and vegetable prices dropped 11 percent, reflecting lower prices for kiwifruit.

Petroleum product import prices fell 3 percent in the latest three months to reach similar levels to 2011, led by a 4.2 percent decline for crude oil. Transport equipment prices fell 2.2 percent to a five-year low, driven by new and used cars.

The services terms of trade fell 1 percent in the second quarter as a 0.1 percent gain in services exports was outpaced by a 1.2 percent gain in services imports. Transportation export services, such as New Zealand air and sea transport used by foreigners, rose 1.6 percent and was offset by a 0.5 percent decline in travel services, such as holiday packages and meals.

Services imports were driven higher by a 1.2 percent gain in ‘other’ services such as engineering, a 1.4 percent gain in travel, such as overseas accommodation, and a 0.9 percent increase in transportation, led by sea freight.

The trade-weighted index rose 0.7 percent in the second quarter.


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