NZ: Terms of trade bounce looks fleeting - ANZ

Mark Smith, Senior Economist at ANZ, notes that the NZ OTI goods terms of trade rose 4.4% in Q1, which was stronger than the consensus expectation (+1.0% q/q).

Key Quotes

“This marked the first increase after two consecutive quarterly falls, but index was still 5.8% below its June 2014 peak.

NZD import prices fell 4.3% q/q. Falls were dominated by lower oil prices, with prices for petroleum and petroleum products down 24% in Q1, following a 25% Q4 fall. Excluding petroleum products, import prices fell 1.4% in Q1, with generally broad-based falls aside from an increase in textiles.

NZD export prices were flat in Q1. The 2% fall in the NZD TWI helped support local returns. NZD prices were a mixed bag, with rebounding prices for dairy and increases for forestry prices, non-food crude materials and fish, but falls for meat, wool, and food and beverages.

The Q1 rise in the terms of trade looks fleeting. Oil prices have rebounded sharply from their early 2016 trough and the performance of dairy prices has been lacklustre of late. Certainly, the impact of recent export commodity price weakness should still see reasonable falls in the terms of trade this year – we have pencilled in 5% fall over 2016. That is still a decent income shock for the economy to navigate.

Associated volume data showed exports falling 2.7% q/q, while imports fell 0.7% q/q. The former was weaker than we had expected (large falls were evident for meat and dairy exports) and at face value suggests a more negative contribution from net exports. It points to an element of downside risk to our Q1 GDP pick of a 0.7% q/q increase.”