Data Flash (New Zealand)
NZ: Overseas Trade Indexes - DEC Q 1999
New Zealand's terms of trade fell by 2.2% in Q4:
- export prices rose by 3.2%
- import prices rose by 5.5%
Compared with Q4/1998, export prices were 5.6% higher, while import prices were 5.5% higher.
Exports volumes fell by 1.9% s.a. in Q4 and were just 1.0% higher than in Q4/1998. Non-food manufactured exports
increased by 1.0% s.a. in Q4, but fish exports fell 13.9%. ? Imports volumes rose by 14.0%s.a. due to the importation of
a frigate and aircraft. Excluding those items, import volumes would have been flat for the quarter.
The impact of the positive differential between import and export volumes combined with the negative movement in the
terms of trade has resulted in a significant deterioration in the merchandise trade balance.
The OTI price indices, and the import price index in particular, are key inputs into the RBNZ's inflation forecasts.
The export and import price data appear stronger than the assumptions built into the RBNZ's November forecasts.
A large fall in export and import prices (5.5% and 1.9% respectively) would need to occur in Q1/2000 if the RBNZ's
assumptions for the year to Q1/2000 are to prove correct. Given recent movements in oil and other commodity prices and
further exchange rate weakness the chances of such an outcome are very slim.
Given the close proximity of this data release to the March MPS, the Bank's revised inflation forecasts may not capture
fully today's outturn which, for import prices in particular, was stronger than expected by the market. If so, the final
section of the MPS may note import price developments as a specific risk to the CPI forecasts.
Today's outturn continues the run of data suggesting that the Reserve Bank will increase its official cash rate by 50bp
on 15 March, with further increases to follow soon thereafter.
Adjusting the OTI export and import volume data to match GDP concepts leaves us comfortable with our forecast of around
1% s.a. growth in GDP in Q4/1999.
Darren Gibbs, Senior Economist, New Zealand,
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