NZ: Positive terms of trade, but - BNZ

Doug Steel, Senior Economist at BNZ, suggests that this morning’s Q1 merchandise terms of trade figures were much higher than market (and our) expectations but the broader detail provided in the data gave a much more mixed picture.

Key Quotes

“Purchasing power is rising but trade volumes are weaker (another cautionary sign for Q1 GDP).

Overall, we wouldn’t overstate the positive surprise in the headline terms of trade result although the positives in today’s report probably outweigh the negatives.

Certainly the 4.4% lift in the terms of trade in Q1 far exceeded the 1.0% gain anticipated by the market and the flat result we had penciled in. The terms of trade lift was the result of flat export prices and a 4.3% decline in import prices. It is a significant rise in the purchasing power of the nation’s exports. This was added to by the 3.6% lift in the services terms of trade, released at the same time.

Dairy prices, however, are going nowhere fast. The dairy auction overnight tonight will, of course, be the real time indicator of dairy prices, but gains to date and the usual lag to the trade accounts suggest dairy export prices were about flat in Q2.

Overall, the softer trade volumes only add to our feeling of caution that we have long expressed regards Q1 GDP (our forecast for that remains at +0.4% awaiting the remaining partial indicators over the coming week). This is not to deny a generally positive growth trend and likely bounce back in Q2, given the lead indicators including yesterday’s business confidence survey.”