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.

• [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.

• [2] Base: June 2002 = 1,000

Source: Statistics New Zealand

Figure 4 - Terms of Trade

Source: Statistics New Zealand