2 Mar 2012

Economist expects terms of trade to fall gradually

6:56 am on 2 March 2012

An economist expects the terms of trade to fall gradually this year, as oil prices remain high, and New Zealand's export prices slip.

Official figures show New Zealand's terms of trade fell 1.4% in the final three months of 2011, compared with a 0.6% fall in the previous quarter.

It is the biggest quarterly fall since 2009.

Export prices rose 1.7%, helped by higher prices for meat, wool, fish and forestry products.

But import prices rose at a much faster rate, jumping 3.2% due to rising prices for imported food, petrol, plastics and machinery.

Goldman Sachs economist Philip Borkin says the terms of trade still remain at very high levels, but he expects them to slip slightly this year.

He says commodity analysts globally expect oil prices to remain high, if not push higher, but at the same time there is softness in the prices for New Zealand exports.

Mr Borkin says he believes the terms of trade will moderate over the course of the year, but remain at a high level by historical standards.

He says the historically high terms of trade are providing a boost to the economy at the moment, but as they slip, national income growth's likely slip too.

Mr Borkin says it's unlikely to have any implications in the near term for the Reserve Bank of New Zealand.