External Sector

External Trade

External trade is of fundamental importance to New Zealand. Primary sector-based exports and commodities remain important sources of the country's export receipts, while exports of services and manufactured products also provide a significant contribution. This, together with a reliance on imports of raw materials and capital equipment for industry, makes New Zealand strongly trade-oriented.

Merchandise Trade

After a record merchandise trade deficit of $7.3 billion in early 2006, strong growth in the terms of trade helped reduce the deficit to $5.0 billion in the year to September 2008. Weak domestic demand, uncertainty surrounding the global economic environment and a sharp depreciation in the New Zealand dollar produced a large drop in imported goods at the beginning of 2009. Import values remained low as of December 2009, more than offsetting the recent decline in exports and driving the annual merchandise trade deficit to a seven-year low of $0.5 billion.

The following table records the total value of exports and imports of goods since 2005.

(1) Includes re-exports.

Index of Export Volumes

Sources:  Statistics New Zealand

Trade in Services

Trade in services is dominated by tourist flows. The annual level of services export volumes has been in decline since 2005, with the high New Zealand dollar having an adverse impact on visitor arrivals and their average expenditure. In annual average terms, real services exports fell 9.0% in the year to September 2009.

The services balance recorded in the Balance of Payments peaked at a surplus of $2,010 million in the year to March 2003. Since then, a slowdown in inbound tourism and strong growth in the number of New Zealanders travelling overseas has seen the services balance fall to a deficit of $640 million in the year to September 2009. On a quarterly basis, services imports have fallen more than services exports recently, resulting in easing quarterly deficits over the first three quarters of 2009, reflecting previous falls in the New Zealand dollar.

The services deficit is expected to increase from the middle of 2010, as tourism flows respond with a lag to the recent appreciation in the New Zealand dollar. From mid-2011, the effects of both steadily increasing global growth and the 2011 Rugby World Cup are expected to provide further support to inbound tourism, helping to narrow the services deficit in the medium term.

Terms of Trade

The terms of trade reached a 33-year high in March 2008 and remained elevated throughout the remainder of the year, owing to previously record-high commodity prices continuing to be reflected in export prices, particularly for dairy products, the supply of which had been sharply reduced due to a drought over the summer of 2007/08. The terms of trade fell over the first half of 2009, as significantly lower prices for dairy products more than offset lower import prices, particularly for oil. As of the September quarter 2009, the terms of trade were 13.7% lower than the previous year. The terms of trade are forecast to increase from the end of 2009, reflecting commodity price increases, particularly for dairy, as the global economy continues to strengthen.

(1) Base: June 2002 = 1,000.