2016.12.0103:55:00UTC+00New Zealand’s Terms of Trade fall in Q3, Net Exports to Drag Q3 Gdp Growth

New Zealand’s terms of trade fell in the third quarter, as compared with the consensus expectations of a rise. However, the pace of fall in terms of trade slowed down from the previous quarter. The terms of trade for goods dropped 1.8 percent, modestly weaker than market forecast of 0.1 percent rise. This is the second straight decline and the fourth fall in the last five quarters.

But the index is just 10 percent lower than its mid-2014 highs that is believed to be a decent outcome considering the earlier weakness in global dairy prices, noted ANZ in a research report. Moreover, the third quarter is expected to make the low point.

New Zealand export prices are expected to have dropped 2.8 percent in sequential terms in the third quarter. But, given that the New Zealand dollar was up 4.5 percent, this suggests that modest stronger prices were seen in “world” terms. Every major export category registered weaker NZD export prices in the quarter. However, the biggest declines were witnessed in forestry and non-fuel crude materials. Prices of dairy and meat dropped 3.7 percent and 3.1 percent respectively.

NZD import prices dropped 1 percent quarter-on-quarter, suggesting stronger “world” prices. This was driven by prices of petroleum and petroleum products that rose 12 percent sequentially after a growth of 20 percent in second quarter.

Associated volume data imply that net exports are expected to be a drag on the third quarter economic growth.

“A drag from net trade is in line with our expectations, and reverses the positive contribution made in Q2. At this stage we estimate Q3 GDP growth of 0.6 percent q/q”, added ANZ.