1 Dec 2016

Terms of trade fall, led by weaker export prices

2:26 pm on 1 December 2016

The country's purchasing power with the rest of the world has fallen because of lower prices for dairy, meat and forestry.

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Lower forestry prices contributed to the fall in trade terms. Photo: 123RF

Official figures show the terms of trade, or the quantity of imports that can be bought with a given quantity of exports, declined by 1.8 percent in the three months to September. The terms of trade have fallen in four of the last five quarters.

"The fall in our terms of trade is a reflection of the falling prices of our primary produce exports," Statistics New Zealand international statistics senior manager Jason Attewell said.

"Meat, dairy, and forestry were all down in price, with meat and dairy seeing significant falls in values as well."

Export prices fell for the fourth quarter in a row, down 2.8 percent, and remained at seven-year lows. Volumes also fell, with exporters shipping less meat and dairy.

Import prices declined at a slower pace of 1 percent in the quarter, led by plant and machinery, which more than offset a rise in fuel.

Analysts think the terms of trade have now hit a low, and will start rising, as commodity prices have since picked up.

"We certainly do expect an improvement over time from here. What we have seen is quite a lift in dairy prices that's come through very recently," ASB Bank chief economist Nick Tuffley said.

Mr Tuffley said the terms of trade remained near historical highs, and the indicator was just 10 percent off its peak.

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