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New Zealand Economic and Financial Overview 2014

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

Both export and import values grew strongly in the period prior to the GFC as domestic demand grew rapidly and external demand for commodities was robust. With the onset of the GFC, 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 9.6% from the previous year. The merchandise trade balance remained in surplus from April 2010 until March 2012. The trade balance then deteriorated as commodity prices moderated and the exchange rate appreciated. Although commodity prices have again surged, the 2013 late-summer drought, through its impact on export volumes, resulted in a trade deficit in the year ended September 2013.

The following table records the total value of exports and imports of goods since 2009.

Table 10 - Balance of External Merchandise Trade1
Year to
September
(dollar amounts in millions)
Exports Imports Balance
of Trade
Exports as
% of Imports
2009 41,588 43,257 (1,669) 96.1
2010 41,785 40,810 975 102.4
2011 46,798 46,104 694 101.5
2012 46,748 47,640 (891) 98.1
2013 46,019 47,556 (1,536) 96.8
  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 broadly flat since 2003 with the high New Zealand dollar and the recession following the GFC having an adverse impact on visitor arrivals from traditional tourist partners including the USA, Japan, the UK and Germany. Arrivals from Australia have increased, resulting in higher total visitor numbers. However, because Australian visitors stay in New Zealand for relatively short periods of time, this has resulted in lower average expenditure per visitor. With the positive impact from the Rugby World Cup on services exports now having dropped out of the annual comparison, real services exports in the June 2013 quarter rose by 1.7% from the June 2012 quarter.

Terms of Trade

The terms of trade were elevated 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 GFC 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. In the September quarter 2012, the terms of trade fell 9.2% from year-earlier levels as weak global demand led to a sharp decline in product prices received by New Zealand exporters.

The terms of trade rebounded strongly in 2013 to be up 15.9% in the year to September 2013. Strong demand from China and subdued global dairy supply saw world commodity price indices reaching all time highs. Commodity prices remained elevated over the last quarter of 2013 and are expected to remain high in the near term supporting the terms of trade.

The following table shows the export and import price indices, the overall terms of trade index and annual percentage change in each.

Table 11 - Terms of Trade Indices
  Export Price
Index1
Annual %
Change
Import Price
Index1
Annual %
Change
Terms of Trade
Index1
Annual %
Change
2009 March 1,168 7.1 985 12.6 1,185 (5.0)
June 1,029 (9.7) 958 4.4 1,074 (13.5)
September 973 (21.4) 920 (8.5) 1,057 (14.1)
  December 970 (23.6) 868 (16.6) 1,118 (8.2)
2010 March 1,072 (8.2) 904 (8.2) 1,186 0.1
June 1,112 8.1 920 (4.0) 1,210 12.7
September 1,112 14.3 892 (3.0) 1,246 17.9
  December 1,118 15.3 890 2.5 1,256 12.3
2011 March 1,188 10.8 938 3.8 1,266 6.7
June 1,211 8.9 934 1.5 1,296 7.1
September 1,162 4.5 903 1.2 1,288 3.4
  December 1,182 5.7 931 4.6 1,269 1.0
2012 March 1,138 (4.2) 918 (2.1) 1,240 (2.1)
June 1,126 (7.0) 932 (0.2) 1,209 (6.7)
September 1,055 (9.2) 902 (0.1) 1,170 (9.2)
  December 1,036 (12.4) 896 (3.8) 1,156 (8.9)
2013 March 1,056 (7.2) 877 (4.5) 1,205 (2.8)
June 1,089 (3.3) 864 (7.3) 1,261 4.3
  September 1,185 12.3 874 (3.1) 1,356 15.9
  1. Base: June 2002 = 1,000.

Source: Statistics New Zealand

Figure 3 - Terms of Trade
Figure 3 - Terms of Trade.
Sources: Statistics New Zealand, the Treasury
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