Calm before the storm? NZ trade data still in the black, for now

The export log export trade has suffered after China's property downturn. Photo / File

New Zealand’s terms of trade rose by 0.4 per cent in the June quarter, with export prices proving to be far more resilient than expected.

Market expectations were for a decline in the terms of trade - which measures the ability of exports to pay for imports - but economists said the data had not captured the worst of the recent commodities decline, such as the dramatic fall in milk powder prices over August.

Changes in the terms of trade can have big impacts on the economy as a whole, directly through the impact on export revenues and indirectly through the impact of imported goods and services prices on domestic costs and prices.

Stats NZ said export prices for goods fell by just 0.6 per cent over the quarter and import prices fell 1.0 per cent.

Export volumes for goods rose 6.8 per cent and import volumes fell 2.8 per cent.

The data has not captured the sharp fall in Global Dairy Trade (GDT) auction prices over recent weeks.

“There remains a risk that this weakness is indicative of softness in the prices of the other export commodities we export predominantly to China,” ANZ agriculture economist Susan Kilsby said.

“Weak export prices will result in a sizeable income hit for farmers that will reduce spending in rural communities and subsequently demand throughout New Zealand,” Kilsby said.

Westpac senior agri economist Nathan Penny expects to see a big decline in the terms of trade for the current September quarter.

“In August, dairy prices were down 18 per cent, so this is really treading water before we go back again,” he said.

The data showed that shipping costs had come down by 16 per cent over the quarter.

“If you go back 12 to 18 months, shipping costs were a bit feature of supply constraints and costs, so we are finally seeing that come off quite rapidly,” he said.

Penny said the data could improve as the summer approaches as the tourism sector gets fully under way.

ASB said the 0.4 per cent gain in the terms of trade substantially outperformed its estimate of a 3 per cent fall, but the bank does not expect to see a substantial recovery in the data for another 12 months.

“With the market well-supplied in the near term and the Chinese economy continuing to falter, we don’t anticipate dairy prices will move much higher for some time,” ASB Bank economists said.

“More broadly, the deterioration in the Chinese economy and the relatively subdued outlook for global growth are likely to carry further downside risk for commodity prices in general and demand for NZ’s exports in particular,” they said.

On the imports side of the ledger, oil prices have begun to regain ground over recent months.

Over the last three months, key oil benchmarks have lifted as much as 15-20 per cent.

Stats NZ figures continue to show huge annual lifts in services trade as the border reopening continues to make its presence felt.

Services exports lifted 48 per cent versus the June 2022 quarter (when the reopening was in the early stages), once again outstripping the 15 per cent recovery in services imports.

Strong tourism inflows were evident in monthly travel data released by Stats NZ over the first half of this year, but started to plateau in the second quarter and look to have eased more recently, ASB said.

“In particular, Chinese arrivals look to be largely missing in action,” ASB said.

The bank has in the past said a less rapid recovery from China, this could lead to favourable net services exports and, ultimately, a lower net boost to the New Zealand economy.

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.