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External Sector

External Trade

External trade is of fundamental importance to New Zealand. Primary sector-based exports and commodities remain important sources of 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. Domestic demand picked up again in 2010 as the domestic economy recovered from recession.

Exports held up well through the GFC, mainly due to commodity demand from China, which continued to grow strongly. Export values surged to new highs in 2011, with the annual total up 11% in the June quarter from the previous year. This resulted in an improving merchandise trade balance, reaching a surplus in the 12 months to April 2010 and remaining in surplus throughout the rest of 2011.

Table 10 records the total value of exports and imports of goods since 2007.

Table 10 - Balance of External Merchandise Trade[1]
  Exports Imports Balance of Trade Exports as % of Imports
Year to September (dollar amounts in millions)
2007 34,591 40,878 (6,287) 84.6%
2008 41,973 47,022 (5,048) 89.3%
2009 41,588 43,258 (1,669) 96.1%
2010 41,788 40,810 978 102.4%
2011 46,790 46,065 724 101.6%
  • [1] Includes re-exports.

Source: 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 vistor arrivals from high-spending countries, including the USA, Japan and Europe. Arrivals from Australia have increased, resulting in higher total visitor numbers but lower average expenditure. On an annual basis, real services exports fell 3.3% in the year to September 2011.

The services balance recorded in the Balance of Payments peaked at a surplus of $1,978 million in the year to September 2003. The slowdown in inbound tourism and strong growth in the number of New Zealanders travelling overseas saw the services balance fall to a deficit of $764 million in the year to March 2009 before recovering to a surplus of $374 million in the year to March 2010. The deficit then returned, increasing to $1,094 million in the September 2011 quarter. This was due to both a fall in services exports and increase in services imports with the high New Zealand dollar a major contributing factor.

Terms of Trade

The terms of trade reached new highs during 2008, as high commodity prices were reflected in export prices, particularly for dairy products. The terms of trade fell significantly during 2009, reflecting the impacts of the Global Financial Crisis on commodity prices and demand. Export prices fell much more than import prices. As the global recovery commenced, the terms of trade recovered, hitting new highs in the June 2011 quarter. The terms of trade are expected to ease again, reflecting the renewed fears of a global slowdown and sovereign debt troubles in Europe, but still remain at elevated levels.

Table 11 shows the export and import price indices, the overall terms of trade index and the annual percentage change in each.

Table 11 - Terms of Trade Indices
    Export Price Index[2] Annual % Change Import Price Index[2] Annual % Change Terms of Trade Index[2] Annual % Change
2007 March 970 4.8 869 0.3 1117 4.5
  June 958 (5.9) 854 (8.0) 1122 2.3
  September 990 (2.0) 852 (9.5) 1163 8.4
  December 1045 7.4 873 (1.4) 1197 8.8
2008 March 1091 12.5 875 0.7 1247 11.6
  June 1140 19.0 918 7.5 1242 10.7
  September 1238 25.1 1006 18.1 1230 5.8
  December 1269 21.4 1041 19.2 1218 1.8
2009 March 1168 7.1 985 12.6 1185 (5.0)
  June 1029 (9.7) 958 4.4 1074 (13.5)
  September 973 (21.4) 920 (8.5) 1057 (14.1)
  December 970 (23.6) 868 (16.6) 1118 (8.2)
2010 March 1072 (8.2) 904 (8.2) 1186 0.1
  June 1112 8.1 920 (4.0) 1210 12.7
  September 1112 14.3 892 (3.0) 1246 17.9
  December 1118 15.3 890 2.5 1256 12.3
2011 March 1188 10.8 938 3.8 1266 6.7
  June 1211 8.8 934 1.5 1296 7.1
  September 1162 4.5 903 1.1 1288 3.4
  December 1183 5.8 931 4.6 1270 1.1
  • [2] Base: June 2002 = 1,000

Source: Statistics New Zealand

Figure 4 - Terms of Trade
Figure 4 - Terms of Trade.
Source: Statistics New Zealand
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