11 Jun 2010

Fragile global economy still a threat - economists

8:09 am on 11 June 2010

Economists say further rises in New Zealand's purchasing power may be threatened if commodity prices are hit by another slow down in the global economy.

Figures issued by Statistics New Zealand show the terms of trade rose almost 6% in the first three months of the year, due to strong increases in dairy prices, which rose by nearly a third.

There was a rise of 5.7% in the terms of trade in the December previous quarter.

A rise in the terms of trade means a larger volume of imports can be purchased for every dollar of exports sold.

ANZ economist Mark Smith warns Europe's debt crisis and fears of another slowdown could weaken commodity prices, which may result in softer terms of trade data in the second half of the year.

Commonwealth Bank of Australia economist Chris Tennant Brown, agrees, saying an export-led recovery is heavily dependent on strong commodity prices.