Terms of trade rise as imported petrol prices slump

The country's terms of trade rose 1.5% in the first three months of the year as a slump in imported petrol prices offset weaker prices for dairy exports.

This halted two quarters of decline, but the figures lagged behind the 1.7% gain projected in a Reuters survey.

The nation's terms of trade, which measures the quantity of imports the country can buy with a set amount of exports, reached a 40-year high in the second quarter of last year as a high kiwi dollar kept import prices in check. They deteriorated in the second half of the year as dairy export prices declined and the currency fell from a post-float high on a trade-weighted basis. 

"This bounce in the terms of trade is likely to be reversed in the next couple of quarters, given that world oil prices have risen from their lows while dairy export prices have seen renewed declines," Westpac Banking Corp economist Michael Gordon, says. "But even so, we believe the current downturn in the terms of trade is nearing its end point. If we're right, the trough in this cycle is still likely to be higher than the previous peak seen in 2011."

Dairy export prices dropped 6.3%, while volumes fell 2.2% in the latest quarter, leading a 3.7% decline overall in export prices. Export volumes rose 1.4%.

Meat prices dropped 4.5% while volumes climbed 4.6% to the highest level since the series began in 1990. Prices of forest products rose 1.4% and volumes fell 4.7%.

Imported goods prices dropped 5.1% in the first quarter as volumes edged up 0.1%. Petrol and petroleum product prices tumbled 29% to the lowest level since the June 2005 quarter, while the volume fell 14%.

In seasonally adjusted terms, the value of exports fell 2.5% to $11.4 billion while the value of imports declined 4.8% to $11.8 billion.

The terms of trade weakened against the nation's biggest trading partners. For China, the terms of trade fell 4.4 percent, as export prices fell 2.3 percent led by dairy, and import prices rose 2.2%.

Against Australia the terms of trade dropped 7.7%, as export prices fell 8.9%, led by crude oil and cheese, and import prices declined 1.2%.

The terms of trade with the US fell 3.3% as export prices rose 0.3% and import prices rose 3.8%, and against Japan, they dropped 1.4%, as export prices fell 4.8% and import prices declined 3.5 percent.

That was made up for by the rest of the world, excluding the European Union, with the terms of trade jumping 18%, as export prices were down 5.8% and import prices down 20%.

(BusinessDesk)