NZ economy faces hit as export prices slump

Logs being loaded at Centreport in Wellington, bound for China. Photo / NZME

Export prices for meat and logs tumbled in June as slower-than-expected Chinese economic growth hit demand for New Zealand commodities.

The ANZ World Commodity Price Index fell 2.3 per cent month on month in June.

The meat and fibre index fell 7.8 per cent with sharp downward movements in both beef and lamb prices.

Lamb fell 10.2 per cent as major markets in Europe and China came under economic pressure, said ANZ agricultural economist Susan Kilsby.

Beef prices also came under pressure - of 7.2 per cent - due to increased supply from both New Zealand and Australia, as well as more beef being exported from South America, she said.

Beef and lamb are expected to fall further in the coming months.

The forestry index fell 3 per cent.

“Demand from China for logs is weak and there are few alternative markets for raw logs,” Kilsby said.

Logs are currently worth 21 per cent less than a year ago and the market is expected to remain weak throughout the Northern Hemisphere summer as building activity tends to slow in China at this time.

Meanwhile, prices fell at the latest Global Dairy Trade auction, the GDT price index dropping 3.3 per cent from the last sale in mid-June.

The main drivers of the index were butter, which fell by 10.3 per cent to US$4842 a tonne, and skim milk powder, which dropped 6.0 per cent to US$2525/tonne.

Whole milk powder, which has a big bearing on Fonterra’s farmgate milk price, eased by 0.5 per cent to US$3149 a tonne. Fonterra’s forecast for the 2023/24 season currently sits at $7.25 to $8.75 per kg of milksolids, with a midpoint of $8.00 per kg. The co-op has said the season forecast has been impacted by reduced demand.

The ANZ Index also noted falls in dairy to lower Chinese demand.

In local currency terms, the index fell just 0.6 per cent month on month, supported by a 0.7 per cent dip in the kiwi dollar against the trade-weighted index.

The commodity price downturn is expected to put added pressure on the New Zealand economy as it struggles with recessionary headwinds of high-interest rates in tandem with sticky inflation pressures.

Broadly though falling global prices are expected to be a disinflationary force and should ultimately flow through to lower pricing in the domestic retail market.

Many economists are forecasting a double-dip recession, with the economy bouncing briefly out of technical recession in the June quarter but another downturn later this year.

In a report published today by Kiwibank economists said they expected to see another dip from the third quarter through to the first quarter of 2024, with growth through 2024 remaining weak.

Kiwibank lifted its outlook for growth marginally on expectations that higher net migration will offset pressure from interest rates and export prices.

Liam Dann is Business Editor at Large for the New Zealand Herald. He is a senior writer and columnist as well as presenting and producing videos and podcasts. He joined the Herald in 2003.