New Zealand’s terms of trade hit a new all-time higher in Q4 - ANZ

Analysts at ANZ explained that New Zealand’s terms of trade hit a new all-time higher in Q4, as broad-based export commodity price strength continued to support.

Key Quotes:

"Admittedly, the index is probably as good as it gets for now, although we expect it to stay at a historically strong level. Import volumes surged over the quarter, at face value suggesting a large drag on Q4 GDP growth. However, some of this will need to be discounted as it will reflect leased Air NZ planes that won’t be included in the GDP figures. Nevertheless, net exports do still look like they will drag on the Q4 GDP accounts overall.

The OTI goods terms of trade rose 0.8% q/q in Q4, to a new all-time high. It follows an upwardly revised 1.3% q/q gain in Q3 (previously reported at 0.7%). It is clearly a positive story in terms of what it implies for national incomes and the economy’s overall purchasing power, and reflects both cyclical and structural forces. However, it is probably as good as it is going to get for now, with our forecasts showing the terms of trade easing modestly over the next year or two.

·         NZD export prices rose 4.9% q/q. After accounting for NZD moves, we estimate implied “world” prices rose a more modest 0.4% q/q. The biggest gains were seen in dairy, meat, forestry and aluminium.

·         NZD import prices rose 4.0% q/q, which implies a fall in prices in “world” terms of around 0.6% q/q. It occurred despite a large increase in petroleum and related product prices, and reinforces that outside of commodity price moves, the global inflationary environment remains subdued.

·         Associated volume data suggest net exports will drag on Q4 GDP growth. Seasonally adjusted export volumes rose 2.6% q/q, supported by strong meat, seafood and forestry exports. Import volumes surged 8.5% q/q, which is the strongest quarterly growth since 1999. Import demand is strong. However, we suspect the data has been thrown around by Air NZ having to ‘import’ two leased planes over the quarter, which won’t affect the GDP accounts."