New Zealand’s terms of trade shrank in the last quarter of 2018 as weaker dairy prices weighed on the value of those exports, while at the same time increasingly expensive fuel drove up the cost of imports.
The terms of trade, which measures the purchasing power of New Zealand’s exports relative to imports, fell 3 percent in the three months through December, accelerating from a 0.1 percent decline in September, Statistics New Zealand said. That was the steepest quarterly fall since December 2015, and took the index to its lowest level in two years.
The terms of trade is an indicator of the state of the overall economy, with December’s decline meaning New Zealand can buy fewer imports for the same amount of exports.
Export volumes rose 0.8 percent in the quarter, however, the weaker dairy prices meant the value shrank 1.3 percent to $14.06 billion. Import volumes were up 0.2 percent, but more expensive petrol led to a 2.7 percent increase in value to $15.56 billion.
“While the Global Dairy Trade price index has been increasing recently, there’s often a lag between an auction price and when that order is filled,” business prices delivery manager Sarah Johnson said in a statement. “The export price fall in the December quarter likely reflects falling global dairy auction prices between June and November 2018.”
The volume of exported dairy products fell 1.3 percent from the September quarter, while the value dropped 6.8 percent. Food and beverage export volumes were down 0.1 percent in the quarter, while their value shrank 2.5 percent.
Wool exports enjoyed a good quarter, with volumes sold up 8.7 percent and values rising 7 percent.
The volume of imported petroleum and petroleum products sank 15 percent in the quarter, however, the value of those imported goods was only down 8.6 percent. Non-fuel crude material import volumes rose 8 percent in the quarter, but were more expensive with the value up 16 percent.
Johnson said petrol product prices have climbed for the past five quarters, and crude, diesel and petrol were all more expensive in the December quarter.
The New Zealand dollar was largely unmoved by the data, which was released at the same time as January building consents. It was recently trading at 68.08 US cents. The currency appreciated 2.8 percent on a trade-weighted basis in the December quarter, with the TWI recently at 73.66.