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New Zealand Economic and Financial Overview 2016

External Sector

External Trade

External trade is of fundamental importance to New Zealand. Primary sector-based exports and commodities are 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

Following a period of strong growth in both export and import values, imports fell with the onset of the GFC owing to weak domestic demand, uncertainty surrounding the global economic environment and a sharp depreciation in the New Zealand dollar. Domestic demand and import values picked up again in 2010 as the domestic economy recovered from the recession.

Exports held up well through the GFC, mainly owing to commodity demand from China, which continued to grow strongly. Export values surged to new highs in 2011 and the merchandise trade balance remained in surplus from April 2010 until March 2012. The trade balance then deteriorated over 2012 as commodity prices moderated and the exchange rate appreciated.

Commodity prices surged again in the first half of 2013 owing to robust demand from China, although the late-summer drought, through its impact on export volumes, led the trade balance to weaken. The trade surplus rebounded in late 2013 and early 2014 as agricultural production recovered and commodity prices rose to record highs. Dairy prices then began to decline as a result of rising global milk production and high inventories in China. Prices rallied briefly in the first quarter of 2015 on fears that drought might curb New Zealand milk production. When it became evident that milk production was not significantly affected and that global demand remained weak, prices began falling sharply again, reaching fresh lows in August before recovering somewhat.

The level of nominal goods exports remains lower than the peaks in 2014, contributing to the widening annual trade deficit. Nominal goods exports are expected to begin rising again from 2016 as export prices pick up and supported by a weaker dollar. However, the volume of goods exports is expected to decline over early 2016 as agricultural production falls in response to low farm gate prices (for milk), smaller dairy, beef and sheep herds and flocks, and dry conditions from El Nino. Volumes are expected to pick up from the second half of 2016 as climate conditions return to normal (assuming no permanent impacts from El Nino on livestock numbers).

The following table records the total value of exports and imports of goods since 2011.

Table 11 - Balance of External Merchandise Trade[1]
  Exports Imports Balance of Trade Exports as % of Imports
Year to September (dollar amounts in millions)
2011 47,702 46,896 806 101.7
2012 46,064 47,219 (1,155) 97.6
2013 48,044 48,360 (317) 99.3
2014 50,075 51,258 (1,183) 97.7
2015 48,980 52,530 (3,549) 93.2

Source: Statistics New Zealand

  • [1]Includes re-exports

Trade in Services

The largest component of services exports is tourism. The annual level of services export volumes remained broadly flat between 2002 and 2014, with the high New Zealand dollar and the recession in many advanced economies during the GFC having an adverse impact on visitor arrivals from traditional tourism sources, including the US, Japan, the UK and Germany. However, since the end of 2014 volumes have picked up strongly in response to a rapid increase in visitor arrivals, which exceeded 3 million for the first time in the year to July.

China has been the main driver of the increase in visitor arrivals and is now the second largest source of visitors after Australia. Structural change in the Chinese outbound market, including a shift from group to individual travel, has contributed to a rise in both visitor numbers and average expenditure per visit. The rapid expansion in Chinese outbound tourism, together with steady growth in New Zealand's traditional markets such as Australia and the US are expected to underpin growth in tourism for some time to come.

Other services exports include transport, telecommunications, education and financial and business services. Real services exports in the year to June 2015 grew by 10.6% compared to the previous year.

Meanwhile, growth in the volume and value of services imports is expected to be modest over the next year, with the imports of business services and expenditure overseas by New Zealanders dampened by a weak New Zealand dollar and slower growth in the domestic economy.

Terms of Trade

The terms of trade fell significantly during 2009, from an elevated level in 2008, reflecting the impacts of the GFC on commodity prices and external demand, which led to a larger fall in export prices compared to import prices.

As the global recovery commenced, the terms of trade recovered, hitting new highs in the June 2011 quarter. The terms of trade began to decline in the second half of 2011 and continued to fall over 2012, to be down 11% in the December quarter 2012 compared to its high in mid-2011. The fall in the terms of trade was owing to weak global demand facing New Zealand exporters, which led to export prices falling faster than import prices.

The terms of trade rebounded strongly in 2013 to be up 20% in the year. Strong demand from China and subdued global dairy supply saw world commodity price indices reaching all time highs. The terms of trade continued to rise in 2014, albeit at a slower pace, to be up 12.5% in the year to June, as continued large falls in import prices more than offset comparatively small declines in commodity export prices. The terms of trade have fallen since 2014, largely reflecting dairy price falls, but remain at high levels relative to history.

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