Philip Borkin, Senior Economist at ANZ, notes that the New Zealand’s OTI goods terms of trade fell 2.0% q/q in Q4, which was modestly weaker than consensus expectations (0.0% q/q).
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This follows a 3.8% q/q fall in Q3 and sees the index now sitting close to 10% below its recent peak (Q2 2014).
NZD export prices fell 5.7% q/q. The higher NZD (on a TWI basis) contributed to NZD price falls over the quarter. Nevertheless, “world” prices are still estimated to have fallen 2.5%. Dairy dominated the movement in NZD prices (-13%), although falls were reasonably broadbased, with weakness seen in meat, seafood, aluminium and food & beverages prices.
NZD import prices fell 3.7% q/q. This was partly due to the higher NZD, but prices for petroleum and petroleum products made the largest contribution to the fall, dropping 25% q/q to their lowest level since Q1 2005. This is hardly surprising given oil price falls. Excluding petroleum, NZD import prices fell a far more modest 0.5%.
The terms of trade are still high by historical standards. However, further falls are likely from here. While low oil prices will provide an important buffer – the impact of recent commodity price weakness should see significant falls in the goods terms of trade this year – we have pencilled in a 20% fall over 2016. That is a decent income shock for the economy to navigate.
Associated volume data showed exports falling 2.4% q/q, while imports rose 0.7% q/q. The former was weaker than we had expected and at face value suggests net exports had a modest drag on Q4 GDP growth (GDP data due in a couple of weeks will confirm this). Offsetting this should be a strong performance from services exports, assisted by the buoyant tourism sector. At this stage, our estimate for Q4 GDP growth sits at 0.7% q/q.”
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