11 Mar 2010

Terms of trade leap 5.7%

7:14 am on 11 March 2010

The country's purchasing power with the rest of the world has jumped by the biggest amount in 35 years.

Statistics New Zealand says the terms of trade rose 5.7% in the three months to December because of a drop in import prices overshadowing a fall in export prices.

The terms of trade measures what a country can buy with what it produces, and the latest result reverses six consecutive quarterly declines.

But Ganesh Nana, chief economist with financial consultancy firm BERL, has warned that the country still has a long way to go, and the figures have nothing to do with New Zealand's own efforts.

Mr Nana says New Zealand should be focusing on what it is producing - an area in which it has a long way to go.

He says economic policies should favour exports, not speculation and property values.

UBS Investment senior economist Bank, Robin Clements says the result was stronger than expected. He predicts the terms of trade will continue to improve in coming quarters.

Export volumes fell 1.2%, mainly as a result of falls in petroleum and dairy products, and import volumes rose 1.6% because of more capital goods and cars arriving in New Zealand.

Export prices fell by 0.3% as a result of lower prices for meat and fish, while import prices fell by 5.8%, largely because of a rising New Zealand dollar.