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NZ terms of trade fall 1.9% in 4th qtr, on falling prices for dairy exports

02 Mar 2015

New Zealand's terms of trade fell for a second straight quarter in the final three months of 2014, as prices and volumes of dairy exports declined, while import prices rose.

The merchandise terms of trade declined 1.9 percent in the fourth quarter as prices of exported goods fell 1.8 percent, seasonally adjusted, and import prices gained 0.2 percent, according to Statistics New Zealand. The terms of trade, which measures the volume of imports that can be funded by a fixed volume of exports, has declined from a four-decade high reached in the second quarter last year.

Dairy products, the nation's biggest export commodity, continue to dominate trade data and excluding milk-based products, prices of exports actually rose 4.9 percent in the fourth quarter. Dairy prices declined 15 percent in the final three months of 2014, to be 28 percent below their recent peak in the first quarter of 2014. Fonterra Cooperative Group last week affirmed its 2015 milk payout at $4.70 per kilogram of milk solids, saying a rebound in prices this year gave it confidence it could meet that target.

"This downturn appears to be nearing completion - lower oil import prices will again counteract the fall in dairy export prices in the March quarter, and dairy prices will be on the rise again from the June quarter," said Michael Gordon, senior economist at Westpac Banking Corp.

The decline in the terms of trade was smaller than the 3 percent drop forecast by economists. Year on year they fell 4.6 percent, as export prices dropped 7.6 percent, outpacing a 3.1 percent decline in import prices.

The decline in dairy offset a surge in meat export prices and volumes in the fourth quarter.The export price of beef climbing 23 percent to a record, lifting overall meat export prices by 12 percent. Seasonally adjusted meat volumes gained 4.2 percent and prices rose 15 percent.

Seasonally adjusted forestry export values climbed 13 percent and volumes rose 7.4 percent.

Intermediate goods, used for further processing by local industry, led gains in imports, with volumes rising 1.6 percent overall. A weaker New Zealand dollar contributed to the gain in import prices, which was partly offset by a 10 percent decline in prices of petroleum and related products.

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