1 Mar 2017

Terms of trade nudges historical high

2:19 pm on 1 March 2017

The country's purchasing power with the rest of the world has rebounded, because of a recovery in milk powder prices and cheaper imports of electronic goods.

An aerial view of a container ship carrying exports (file)

A rise in dairy export prices has helped lift the terms of trade. Photo: 123RF

Official figures show the terms of trade, or the quantity of imports that can be bought with a given quantity of exports, jumped by 5.7 percent in the three months to December, snapping two quarters of decline.

The terms of trade is now at its highest level since the June 2014 quarter, and is only 3.7 percent off historical highs.

"The uptick of dairy export prices lifted New Zealand's terms of trade," Statistics New Zealand business prices manager Sarah Williams said.

"However, dairy export prices are still about a third lower than they were three years ago."

Export prices rose by 4.8 percent and, apart from better dairy prices, meat and fruit also rose.

Export volumes fell by 5.8 percent, with exporters shipping less dairy and meat.

Dairy slumped 8.1 percent, while meat declined 0.6 percent to their lowest level since the June 2012 quarter.

"Dairy export volumes were particularly weak reflecting the poor first half of the dairy season," ASB senior rural economist Nathan Penny said.

"Stronger production over recent months should see a partial dairy export volume recovery in 2017."

Import prices declined 0.8 percent in the quarter, largely due to cheaper mobile phones and personal computers.

"Ongoing improvements in technology have meant that imports are better value for money," Ms Williams said.

Analysts are picking the terms of trade will continue to rise this year due to further improvements in dairy prices and a stronger production season.

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